Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 78589-78691 [2013-30465]

Download as PDF Vol. 78 Thursday, No. 248 December 26, 2013 Part III Office of Management and Budget tkelley on DSK3SPTVN1PROD with RULES3 2 CFR Chapter I, Chapter II, Part 200, et al. Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\26DER3.SGM 26DER3 78590 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations OFFICE OF MANAGEMENT AND BUDGET 2 CFR Chapter I, and Chapter II, Parts 200, 215, 220, 225, and 230 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Executive Office of the President, Office of Management and Budget (OMB). ACTION: Final guidance. AGENCY: To deliver on the promise of a 21st-Century government that is more efficient, effective and transparent, the Office of Management and Budget (OMB) is streamlining the Federal government’s guidance on Administrative Requirements, Cost Principles, and Audit Requirements for Federal awards. These modifications are a key component of a larger Federal effort to more effectively focus Federal resources on improving performance and outcomes while ensuring the financial integrity of taxpayer dollars in partnership with non-Federal stakeholders. This guidance provides a governmentwide framework for grants management which will be complemented by additional efforts to strengthen program outcomes through innovative and effective use of grantmaking models, performance metrics, and evaluation. This reform of OMB guidance will reduce administrative burden for non-Federal entities receiving Federal awards while reducing the risk of waste, fraud and abuse. This final guidance supersedes and streamlines requirements from OMB Circulars A–21, A–87, A–110, and A– 122 (which have been placed in OMB guidances); Circulars A–89, A–102, and A–133; and the guidance in Circular A– 50 on Single Audit Act follow-up. Future reform efforts may eventually seek to incorporate the Cost Principles for Hospitals in Department of Health and Human Services regulations. Copies of the OMB Circulars that are superseded by this guidance are available on OMB’s Web site at http:// www.whitehouse.gov/omb/circulars_ default/. The final guidance consolidates the guidance previously contained in the aforementioned citations into a streamlined format that aims to improve both the clarity and accessibility. This final guidance is located in Title 2 of the Code of Federal Regulations. This final guidance does not broaden the scope of applicability from existing government-wide requirements, tkelley on DSK3SPTVN1PROD with RULES3 SUMMARY: VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 affecting Federal awards to non-Federal entities including state and local governments, Indian tribes, institutions of higher education, and nonprofit organizations. Parts of it may also apply to for-profit entities in limited circumstances and to foreign entities as described in this guidance and the Federal Acquisition Regulation. This guidance does not change or modify any existing statute or guidance otherwise based on any existing statute. This guidance does not supersede any existing or future authority under law or by executive order or the Federal Acquisition Regulation. DATES: Effective Date: This guidance is effective December 26, 2013. Applicability Date: This guidance is applicable for Federal agencies December 26, 2013 and applicable for non-Federal entities as described in this guidance. FOR FURTHER INFORMATION CONTACT: OMB will host an informational webcast with the Council on Financial Assistance Reform and key stakeholders. Please visit www.cfo.gov/ cofar for further information on the time and date of the webcast and on the Council on Financial Assistance Reform. For general information, please contact Victoria Collin or Gil Tran at the OMB Office of Federal Financial Management at (202) 395–3993. SUPPLEMENTARY INFORMATION: I. Objectives and Background A. Objectives The goal of this reform is to deliver on the President’s directives to (1) streamline our guidance for Federal awards to ease administrative burden and (2) strengthen oversight over Federal funds to reduce risks of waste, fraud, and abuse. Streamlining existing OMB guidance will increase the efficiency and effectiveness of Federal awards to ensure best use of the more than $500 billion expended annually. This reform builds on two years of work by the Federal government and its non-Federal partners: state, and local governments, Indian tribes, institutions of higher education, nonprofit organizations, and the audit community to rethink and reform the rules that govern our stewardship of Federal dollars. The revised rules set standard requirements for financial management of Federal awards across the entire Federal government. These reforms complement targeted efforts by OMB and a number of Federal agencies to reform overall approaches to grant-making by implementing innovative, outcome-focused grantmaking designs and processes in PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 collaboration with their non-Federal partners, in accordance with OMB guidance in M–13–17 ‘‘Next Steps in the Evidence and Innovation Agenda’’. This new guidance plays an important role in fostering these and other innovative models and cost-effective approaches by including many provisions that strengthen requirements for internal controls while providing administrative flexibility for non-Federal entities. These provisions include mechanisms such as ‘‘fixed amount awards’’ which rely more on performance than compliance requirements to ensure accountability, and allow Federal agencies some additional flexibility to waive some requirements (in addition to the longstanding option to apply to OMB to waive requirements) that impede their capacity to achieve better outcomes through Federal awards. This guidance will provide a backbone for sound financial management as Federal agencies and their partners continue to develop and advance innovative and effective practices. This reform of OMB guidance will improve the integrity of the financial management and operation of Federal programs and strengthen accountability for Federal dollars by improving policies that protect against waste, fraud, and abuse. At the same time, this reform will increase the impact and accessibility of programs by minimizing time spent complying with unnecessarily burdensome administrative requirements, and so reorients recipients toward achieving program objectives. Through close and sustained collaboration with Federal and non-Federal partners, OMB has developed ideas that will ensure that discretionary grants and cooperative agreements are awarded based on merit; that management increases focus on performance outcomes; that rules governing the allocation of Federal funds are streamlined, and that the Single Audit oversight tool is better focused to reduce waste, fraud, and abuse. As set forth in Executive Order 13563 of January 18, 2011, on Improving Regulation and Regulatory Review (76 FR 3821; January 21, 2011; http:// www.gpo.gov/fdsys/pkg/FR-2011-01-21/ pdf/2011-1385.pdf), each Federal agency must ‘‘tailor its regulations to impose the least burden on society, consistent with regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.’’ To that end, it is important that Federal agencies identify those ‘‘rules that may be outmoded, ineffective, insufficient, or excessively burdensome,’’ and ‘‘modify, E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations streamline, expand, or repeal them in accordance with what has been learned.’’ This was reinforced in Executive Order 13579 of July 11, 2011 on Regulation and Independent Regulatory Agencies (76 FR 41587; July 14, 2011; http://www.gpo.gov/fdsys/pkg/ FR-2011-07-14/pdf/2011-17953.pdf). As in other areas involving Federal requirements, this guidance follows OMB’s commitment to making government more accountable to the American people while eliminating requirements that are unnecessary and reforming those requirements that are overly burdensome. Eliminating unnecessary requirements will allow recipients of Federal awards to re-orient efforts spent on compliance with complex requirements towards achievement of programmatic objectives. In order to ensure that the public receives the most value, it is essential that these programs function as effectively and efficiently as possible, and that there is a high level of accountability to prevent waste, fraud, and abuse. This reform streamlines the language from eight existing OMB circulars into one consolidated set of guidance in the code of Federal regulations. This consolidation is aimed at eliminating duplicative or almost duplicative language in order to clarify where policy is substantively different across types of entities, and where it is not. As a result, the guidance includes sections and parts of sections which are clearly delineated by the type of non-Federal entity to which they apply. For Federal agencies, auditors, and pass-through entities that engage with multiple types of nonFederal entities in the course of managing grants, this consolidation is intended to clarify where policies are uniform or differ across non-Federal entities, protecting variances in policy where required by the unique nature of each type of non-Federal entity. This clarification will make compliance less burdensome for recipients and reduce the number of audit findings that result more from unclear guidance than actual noncompliance. Section 200.101 Applicability outlines how each subpart of the proposed guidance will apply across types of Federal awards. Following the implementation of these reforms, OMB will continue to monitor their effects to evaluate whether (and the extent to which) the reforms are achieving their desired results, and will consider making further modifications as appropriate. B. The Development of the Reform This proposal reflects input from more than two years of work by the VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Federal and non-Federal financial assistance community led by the COFAR in response to the following two Presidential Directives: 1. February 28, 2011, Presidential Memorandum on Administrative Flexibility, Lower Costs, and Better Results for State, Local, and Tribal Governments, (Daily Comp. Pres. Docs.; http://www.gpo.gov/fdsys/pkg/DCPD201100123/pdf/DCPD-201100123.pdf). This memorandum directs OMB to, with input from our partners and consistent with law, reduce unnecessary regulatory and administrative burdens and redirect resources to services that are essential to achieving better outcomes at lower cost. Specifically, the memorandum directs OMB to ‘‘review and where appropriate revise guidance concerning cost principles, burden minimizations, and audits for state, local, and tribal governments in order to eliminate, to the extent permitted by law, unnecessary, unduly burdensome, duplicative, or low-priority recordkeeping requirements and effectively tie such requirements to achievement of outcomes.’’ 2. Executive Order 13520 on Reducing Improper Payments (74 FR 62201; November 25, 2009; http:// www.gpo.gov/fdsys/pkg/FR-2009-11-25/ pdf/E9-28493.pdf). Equally as essential to a 21st-Century government as reducing burdensome requirements that promote inefficiency is strengthening accountability by ‘‘intensifying efforts to eliminate payment error, waste, fraud, and abuse’’ in Federal programs, as required by EO 13520. Accordingly, Federal agencies must ‘‘more effectively tailor their methodologies for identifying and measuring improper payments to those programs, or components of programs, where improper payments are most likely to occur.’’ In response to the President’s directives above, OMB worked with the Council on Financial Assistance Reform (COFAR, more information available at cfo.gov/COFAR) to publish the February 28, 2012 Advance Notice of Proposed Guidance (ANPG available at www.regulations.gov under docket number OMB–2012–0002) and the February 1, 2013 Notice of Proposed Guidance (NPG available at www.regulations.gov under docket number OMB–2013–0001) in the Federal Register. Through the COFAR’s review of the comments received in response to the ANPG and the NPG, it has worked to formulate and further develop reform ideas to create the 21stCentury version of financial management policy for Federal awards. The COFAR continues to be committed PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 78591 to engaging in outreach efforts with both Federal and non-Federal stakeholders, with respect to this reform and beyond. OMB has adopted changes from the NPG to the final guidance as recommended by the COFAR as described in the summary of major policy reforms (Part II) and the text of the final guidance (Part III). OMB will publish additional supporting materials on the OMB Web site at http:// www.whitehouse.gov/omb/grants_docs. II. Major Policy Reforms In the ANPG and NPG, OMB invited comments from the public on all issues addressed in those notices, and further invited the public to make additional reform suggestions. The goal of both previous notices was to provide the broadest possible collection of stakeholders in the grants community with visibility on these ideas and the opportunity to participate in the discussion. In response to each notice, OMB received more than 300 comments which were carefully considered in the development of this guidance. This section will discuss the policy reforms proposed in the NPG, the broad themes identified in the comments that were received across stakeholders, and the resulting reforms that OMB is implementing in this guidance. The vast majority of comments supported the idea of the consolidation itself and the structure of the guidance. As a result, this final guidance incorporates the proposed consolidation of eight previous sets of guidance into one. Conforming changes made throughout the document support streamlining and improve clarity of language; many of these were suggested by stakeholders during the comment period and have been incorporated, but are not specifically discussed in this preamble. The objective of this reform is to reduce both administrative burden and risk of waste, fraud and abuse. Reducing Administrative Burden and Waste, Fraud, and Abuse: 1. Eliminating Duplicative and Conflicting Guidance: By combining eight previously separate sets of OMB guidance into one, OMB has eliminated numerous overlapping duplicative and conflicting provisions of guidance that were written separately over many years. Beyond dealing with the administrative burden associated with understanding such guidance, nonFederal entities have faced risks of more restrictive oversight and audit findings that stem from inappropriate applications of the guidance caused by overlapping requirements. Streamlining E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78592 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations the guidance into one document improves consistency and eliminates of many duplicative provisions throughout. Further, as described in § 200.110 Effective Date, Federal agencies will implement this guidance in unison, which will provide nonFederal entities with a predictable, transparent, and governmentwide consistent implementation schedule. Finally, this completes a long-standing goal of co-locating all related OMB guidance into Title 2 of the Code of Federal Regulations. 2. Focusing on Performance over Compliance for Accountability: The final guidance includes provisions that focus on performance over compliance to provide accountability for Federal funds. • Section 200.102 Exceptions notes that on a case-by-case basis, in accordance with OMB guidance in M– 13–17, OMB will waive certain compliance requirements and approve new strategies for innovative program designs that improve cost-effectiveness and encourage effective collaboration across programs to achieve outcomes. The models described in OMB Memorandum 13–17 include tiered evidence grants, Pay for Success and other pay-for-performance approaches, and Performance Partnerships allowing braided and blended funding. The goals for these models include encouraging a greater share of funding to support approaches with strong evidence of effectiveness and building more evaluation into grant-making so we keep learning more about what works. In addition to these specific models, M– 13–17 also encourages Federal agencies to pursue other strategies to increase cost-effectiveness in high-priority programs. • Section 200.201 Use of Grant Agreements (Including Fixed Amount Awards), Cooperative Agreements, And Contracts includes provisions for fixed amount awards that minimize compliance requirements in favor of requirements to meet performance milestones. • Section 200.301 Performance Measurement provides more robust guidance to Federal agencies to measure performance in a way that will help the Federal awarding agency and other nonFederal entities to improve program outcomes, share lessons learned, and spread the adoption of promising practices. The Federal awarding agency is required to provide recipients with clear performance goals, indicators, and milestones. • Section 200.419 Cost Accounting Standards and Disclosure Statement, the threshold for IHEs to comply with Cost VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Accounting Standards is raised to align with the threshold in the Federal Acquisition Regulations and the process for Federal agency review of changes in accounting practices is streamlined to reduce risk of noncompliance. • Section 200.430 Compensation— Personal Services strengthens the requirements for non-Federal entities to maintain high standards for internal controls over salaries and wages while allowing for additional flexibility in how non-Federal entities implement processes to meet those standards. In addition, it provides for Federal agencies to approve alternative methods of accounting for salaries and wages based on achievement of performance outcomes, including in approved instances where funding from multiple programs is blended to more efficiently achieve a combined outcome. 3. Encouraging Efficient Use of Information Technology and Shared Services: The final guidance updates provisions throughout to account for the efficient use of electronic information, as well as the acquisition and use of the information technology systems and services that permeate an effective and modern operating environment. • Section 200.94 Supplies clarifies the threshold for defining personal property as a supply, and also that computing devices are subject to the less burdensome administrative requirements of supplies (as opposed to equipment) if the acquisition cost is less than the lesser of the capitalization level established by the non-Federal entity for financial statement purposes or $5,000. • Section 200.303 Internal Controls requires non-Federal entities to take reasonable measures to safeguard protected personally identifiable information as well as any information that the Federal awarding agency or pass-through entity designates as sensitive. • Section 200.318 General Procurement Standards paragraphs (d), (e), and (f) require non-Federal entity’s procurement procedures to avoid duplicative purchases and encourage non-Federal entities to enter into interentity agreements for shared goods and services. • In accordance with the May 2013 Executive Order on Making Open and Machine Readable the New Default for Government Information, Section 200.335 Methods for Collection, Transmission and Storage of Information encourages non-Federal entities to, whenever practicable, collect, transmit and store Federal award-related information in open and machine-readable formats. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 • Section 200.446 Idle Facilities and Idle Capacity allows for the costs of idle facilities when they are necessary to meet fluctuations in workload, as they often are when developing shared service arrangements. • Section 200.449 Interest allows non-Federal entities to be reimbursed for financing costs associated with patents and computer software capitalized in accordance with GAAP on or after January 1, 2016. 4. Providing For Consistent and Transparent Treatment of Costs: The final guidance updates policies on direct and indirect cost to reduce administrative burden by providing more consistent and transparent treatment governmentwide. • Section 200.306 Cost Sharing Or Matching clarifies policies on voluntary committed cost sharing to ensure that such cost sharing is only solicited for research proposals when required by regulation and transparent in the notice of funding opportunity. It may never be considered during the merit review. • Section 200.331 Requirements For Pass-Through Entities requires passthrough entities to provide an indirect cost rate to subrecipients, which may be the de minimis rate described above, thereby further reducing potential barriers to receiving and effectively implementing Federal financial assistance. • Section 200.413 Direct Costs makes consistent the guidance that administrative costs may be treated as direct costs when they meet certain conditions to demonstrate that they are directly allocable to a Federal award. • Section 200.414 Indirect (F&A) Costs includes provisions that: • Provide a de minimis indirect cost rate of 10% of MTDC to those nonFederal entities who have never had a negotiated indirect cost rate, thereby eliminating a potential administrative barrier to receiving and effectively implementing Federal financial assistance (sections 200.210 Information Contained in a Federal award, 200.331 Requirements for Pass-through entities, and 200.510 Financial Statements all require documentation of usage of this rate to allow for future evaluation of its effectiveness); • Require Federal agencies to accept negotiated indirect cost rates unless an exception is required by statute or regulation, or approved by a Federal awarding agency head or delegate based on publicly documented justification; • Allow for a one-time extension without further negotiation of a federally approved negotiated indirect cost rate for a period of up to 4 years. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations • Section 200.433 Contingency Provisions clarifies the circumstances under which contingency costs may be included in Federal awards. • Appendix III Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) includes provisions that extend to all IHEs the provisions previously extended only to a few that allow for recovery of increased utility costs associated with research. 5. Limiting Allowable Costs to Make Best Use of Federal Resources: The final guidance strengthens language in certain items of cost to appropriately limit costs under Federal awards. • Section 200.432 Conferences clarifies allowable conference spending and requires conference hosts/sponsors to exercise discretion and judgment in ensuring that conference costs are appropriate, necessary and managed in a manner that minimizes costs to the Federal award. • Section 200.437 Employee Health And Welfare Costs eliminates the existing allowance for ‘‘morale’’ cost. • Section 200.464 Relocation Costs Of Employees limits the previously unlimited amount of time for which a Federal award may be charged for the costs of an employee’s vacant home for up to six-months. • Section 200.469 Student Activity Costs expands to all entities the limitation on student activity costs that previously applied only to IHEs. 6. Setting Standard Business Processes Using Data Definitions: The final guidance includes provisions that set the stage for Federal agencies to manage Federal awards via standardized business process and use of consistently defined data elements. This will reduce administrative burden on non-Federal entities that must navigate the processes of multiple Federal agencies as they manage information required to implement Federal awards. • Subpart A—Acronyms and Definitions provides standard definitions of terms present not only throughout the document, but also throughout many approved Federal information collections used to manage Federal awards. • Section 200.203 Notices Of Funding Opportunities provides a standard set of data elements to be provided in all Federal notices of funding opportunities. This will make such notices easier for non-Federal entities to compare and understand. • Sections 200.206 Standard Application Requirements, 200.301 Performance Measurement, 200.327 Financial Reporting, and 200.328 Monitoring And Reporting Program VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Performance all require Federal awarding agencies to consistently use OMB-approved standard information collections in their management of Federal awards. • Section 200.210 Information Contained In A Federal Award provides a standard set of data elements to be provided in all Federal awards. As a result, non-Federal entities will receive a consistent set of information for each Federal award they receive, which will reduce the administrative burden and costs associated with managing this information throughout the life of the Federal award. • Section 200.305 Payment extends to non-Federal entities previously covered by OMB Circular A–102 the existing flexibility in OMB Circular A–110 to pay interest earned on Federal funds annually to the Department of Health and Human Services, rather than ‘‘promptly’’ to each Federal awarding agency. • Section 200.407 Prior Written Approval (Prior Approval) provides both Federal agencies and non-Federal entities with a one-stop comprehensive list of the circumstances under which non-Federal entities should seek prior approval from the Federal awarding agency. 7. Encouraging Non-Federal Entities to Have Family-Friendly Policies: Provisions in the final guidance provide flexibilities that better allow nonFederal entities to have policies that allow their employees to balance their personal responsibilities while maintaining successful careers contributing to Federal awards. Specifically, these provisions allow for policies that ease dependent care costs when attending conferences- an issue that has been as one that prevents more women from maintaining careers in science. • Section 200.432 Conferences provides that, for hosts of conferences, the costs of identifying (but not providing) locally available child-care resources are allowable. • Section 200.474 Travel Costs provides that temporary dependent care costs that result directly from travel to conferences and meet specified standards are allowable. 8. Strengthening Oversight: The final guidance strengthens oversight over Federal awards by requiring Federal agencies and pass-through entities to review the risk associated with a potential recipient prior to making an award (including by making better use of available audit information where appropriate), requiring disclosures conflict of interest and relevant criminal violations, expressly prohibiting profit, PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 78593 requiring certifications of senior nonFederal entity officials, and providing Federal agencies with strong remedies to address non-compliance. • Sections 200.112 Conflict of Interest and 200.113 Mandatory Disclosures require non-Federal entities to disclose to Federal agencies any instances of conflict of interest or relevant violations of Federal criminal law. • Sections 200.204 Federal Awarding Agency Review of Merit of Proposals and 200.205 Federal Awarding Agency Review of Risk Posed by Applicants combined with section 200.207 Specific Conditions require Federal awarding agencies to evaluate the merit and risks associated with a potential Federal award and to impose specific conditions where necessary to mitigate potential risks of waste, fraud, and abuse, before the money is spent. • Section 200.303 Internal Controls moves guidance that previously was only discussed in audit requirements (which are often only considered after the funds have been spent) into the administrative requirements to encourage non-Federal entities to better structure their internal controls earlier in the process. • Section 200.331 Requirements for Pass-Through Entities provides a similar requirement for pass-through entities to consider risks associated with subawards combined with flexibility to adjust their oversight framework based on that consideration of risk. • Subtitle VII Remedies for Noncompliance and Subtitle VIII Closeout of Subpart D—Post Federal Award Requirements respectively provide Federal agencies with clear tools to manage non-compliance and efficiently closeout Federal awards. • Section 200.400 Policy Guide expressly prohibits the non-Federal entity from earning or keeping profit resulting from Federal financial assistance unless expressly authorized by the terms and conditions of the Federal award. • Section 200.415 Required Certifications strengthens non-Federal entity accountability by providing explicit and consistent language for required certifications that includes awareness of potential penalties under the False Claims Act. 9. Targeting Audit Requirements on Risk of Waste, Fraud, and Abuse: The final guidance right-sizes the footprint of oversight and Single Audit requirements to strengthen oversight and focus audits where there is greatest risk of waste, fraud, and abuse of taxpayer dollars. It improves transparency and accountability by making single audit reports available to E:\FR\FM\26DER3.SGM 26DER3 78594 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations the public online, and encourages Federal agencies to take a more cooperative approach to audit resolution in order to more conclusively resolve underlying weaknesses in internal controls. • Section 200.501 Audit Requirements raises the Single Audit threshold from $500,000 in Federal awards per year to $750,000 in Federal awards per year. This reduces the audit burden for approximately 5,000 nonFederal entities while maintaining Single Audit coverage over 99% of the Federal dollars currently covered. • Section 200.512 Report Submission requires publication of Single Audit Reports online with safeguards for protected personally identifiable information and an exception for Indian tribes in order to reduce the administrative burden on non-Federal entities associated with transmitting these reports to all interested parties. • Section 200.513 Responsibilities requires Federal awarding agencies to designate a Senior Accountable Official who will be responsible for overseeing effective use of the Single Audit tool and implementing metrics to evaluate audit follow-up. This section also encourages Federal awarding agencies to make effective use of cooperative audit resolution practices in order to reduce repeated audit findings. • Section 200.518 Major Program Determination focuses audits on the areas with internal control deficiencies that have been identified as material weaknesses. Future updates to the Compliance Supplement will reflect this focus as well. The specific reform ideas and the responses to public comments received are outlined below in three main categories: tkelley on DSK3SPTVN1PROD with RULES3 Section A: Subparts A–E: Reforms to Administrative Requirements (the governmentwide Common Rule implementing Circular A–102; Circular A–110; and Circular A–89) Section B: Subpart F: Reforms to Cost Principles (Circulars A–21, A–87, and A–122) Section C: Subpart G: Reforms to Audit Requirements (Circulars A–133 and A–50 In addition, conforming changes and those for linguistic clarity are shown in supporting materials provided on the OMB Web site with this proposal (available at http:// www.whitehouse.gov/omb/grants_ docs#final). VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Section A: Subparts A–E Reforms to Administrative Requirements (The Common Rule Implementing Circular A–102); Circular A–110; and Circular A–89 Audit Clearinghouse within 30 days of the change. As such, the COFAR did not recommend a change to this definition. This section discusses changes to the governmentwide common rule implementing Circular A–102 on Grants and Cooperative Agreements with State and Local Governments; Circular A–110 on Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other NonProfit Organizations (2 CFR part 215); and Circular A–89 on Catalog of Federal Domestic Assistance. The following are major policy changes included in the final guidance. Some commenters suggested that the term ‘‘vendor’’ is more appropriate and, in line with the Federal Acquisition Regulation, should be used throughout the final guidance in place of the proposed ‘‘contractor’’. The COFAR considered this but determined that contractor is more accurate in the context of guidance on how to distinguish between a contract and a grant. The COFAR believes that framing the distinction this way will better encourage Federal agencies to appropriately apply the guidance to awards for financial assistance regardless of the term they currently use to describe those awards. The COFAR recommended continued use of the term ‘‘contractor’’ throughout. As used in this guidance, the term ‘‘contractor’’ includes entities that, in other contexts, may be referred to as ‘‘vendors’’. Subpart A—Acronyms and Definitions Subpart A lists definitions and acronyms for key terms found throughout the document. Because these terms, like the rest of the guidance, originated in eight different sets of guidance, there are many conforming changes made to harmonize the definitions with the terms that are used throughout the guidance. Some definitions reflect policy decisions as follows: 200.18 Cognizant Agency for Audit and 200.73 Oversight Agency for Audit Commenters suggested that instead of defining the cognizant or oversight agency for audit as the Federal awarding agency that provides the most direct funding, it should be defined as the one that provides the most total funding. The suggestion that this would eliminate a potentially burdensome process of changing cognizance to allow for situations where a non-Federal entity receives most of its funding indirectly from one Federal agency, and only a small portion from another agency directly. The COFAR considered this, but noted that even where significant portions of Federal funds are passedthrough to subrecipients, the Federal agency retains a direct relationship only with a direct recipient, and relies on the pass-through entity to oversee the subaward. Further, the COFAR understands these instances to be relatively few, and in those cases where they have preferred to have a cognizant or oversight relationship, they have not found the process of negotiating a change to be burdensome. Contrary to comments reflecting a belief that the current OMB policy requires any change to be made within 30 days, changes have always been permissible at any time with notification to the Federal PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 200.23 Contractor 200.54 Indian Tribe (or ‘‘Federally Recognized Indian Tribe’’) Existing guidance, including NPG, included Indian Tribes in the definition of a state. With the streamlined merging of the circulars and the inclusion of some guidance that is clearly intended only for either states or Indian Tribes, and in response to comments received, the COFAR found that this inclusion is no longer appropriate. As a result, the COFAR recommended that Indian Tribes, including Alaskan Natives, be separately defined as they are under existing statute. 200.94 Supplies The definition of supplies in existing guidance includes all tangible personal property that fall below the prescribed threshold for equipment. Since, as technology improves, computing devices (inclusive of accessories) increasingly fall below this threshold, the proposed guidance made explicit that when they do, they shall be treated consistently with all other items below this level. Many commenters were highly supportive of this clarification in the proposal and indicated that it would greatly help in minimizing administrative burden. Other commenters recommended that because of the high value of the information on computing devices and because of their attractiveness to potential thieves, they should be subject to the more prescriptive oversight requirements of equipment that falls above the threshold. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations The COFAR considered both views and determined that the sensitive information on computing devices could more efficiently be protected through guidance specifically on internal controls for sensitive information, rather than through prescriptive requirements for the devices themselves. Further, the COFAR considered that the prescriptive requirements that are appropriately in place for equipment over the threshold of $5,000 would create an administrative burden the cost of which would outweigh any benefits achieved by reducing the potential attractiveness of these devices to thieves. To guard against the costly burden that treating these devices as equipment would create, the COFAR recommended retaining the definition of supplies as proposed. To protect the sensitive information on these devices, the COFAR recommended new specific language on internal controls governing sensitive information (see section 200.303 Internal Controls). 200.33 Equipment Commenters advocated for a higher threshold for equipment than $5,000. Comments suggested that particularly for large state governments with high amounts of Federal awards, and with state policies of higher capitalization thresholds in place, a higher threshold, possibly in line with the non-Federal entity’s own capitalization threshold, would be more appropriate. The COFAR considered and determined that even though entities may view higher thresholds as appropriate for their own purposes, maintaining the threshold at $5,000 is important to protect the assets purchased with taxpayer dollars under Federal awards. The COFAR did not recommend raising the threshold. 2. Subchapter B: General Provisions tkelley on DSK3SPTVN1PROD with RULES3 200.101 Applicability Some commenters suggested at a minimum that this section in the proposal needed to be revised for clarity, and some proposed significant changes to applicability of the guidance beyond what had been proposed. The COFAR reviewed these and recommended changes for clarity. The guidance maintains existing language stating that this guidance does not supersede any existing or future authority under law or by executive order or the Federal Acquisition Regulation. In various sections throughout the guidance, commenters noted that it would be helpful to note a policy was ‘‘except as provided in statute’’. The COFAR recommended that VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 this language be included once in the beginning as applicable throughout. 200.102 Exceptions Commenters suggested that this section should reflect a more active role for OMB as an arbiter of situations where non-Federal entities encounter policies that deviate from this guidance and do not appear to conform to the list of exceptions articulated. The COFAR considered this feedback, but determined that Federal agencies are responsible for implementing their programs under authorities provided specifically by statute, and are further responsible for responding to any potential concerns from their particular recipients. OMB, as the entity responsible for promulgating the governmentwide guidance, is responsible for ensuring that the policies best meet the desired goals and for providing assistance where it is needed in interpreting the guidance. As reflected in section 200.108 Inquiries, non-Federal entities should address their specific concerns to the Federal awarding agency, cognizant agency for indirect costs, or cognizant or oversight agency for audit. OMB will periodically review the guidance for effectiveness and will provide assistance interpreting the guidance upon request. In addition, new language in paragraph (d) notes that on a case-by-case basis, in accordance with OMB guidance in M– 13–17, OMB will waive certain compliance requirements and approve new strategies for innovative program designs that improve cost-effectiveness and encourage effective collaboration across programs to achieve outcomes. 200.111 Effective Date Commenters requested that OMB and the COFAR orchestrate the implementation of the final guidance in a manner that results in a smooth transition for entities that are required to comply. The COFAR considered these requests as well as past implementations of OMB guidance and recommended that Federal agencies coordinate under OMB’s guidance to issue regulations or OMB-reviewed guidance in unison, which will be effective one year from the publication of this final guidance. As a result, upon implementation, this guidance will be in effect for all Federal awards or funding increments provided after the effective date. Non-Federal entities wishing to implement entity-wide system changes to comply with the guidance after the effective date will not be penalized for doing so. The COFAR further recommended that provisions of Subpart F—Audit PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 78595 Requirements be effective for nonFederal entity fiscal years beginning on or after the effective date of this guidance. An auditee that conducts a biennial audit and has a biennial period beginning before the effective date of this guidance should apply the provisions of OMB Circular A–133. The requirements of Subpart F—Audit Requirements apply to any biennial periods beginning on or after the effective date of this guidance. Federal agencies must submit draft implementing regulations to OMB no later than six months from the date of publication of this guidance unless different provisions are required by statute or approved by OMB. 200.112 Conflict of Interest Commenters suggested that the guidance is missing a broad general statement requiring standards of conduct that mitigate potential conflicts of interest in the administration of Federal awards. The COFAR concurred, but noted that many Federal agencies have specific policies on this that are appropriately tailored to the specific nature of their programs. As a result, the COFAR recommended adding language that requires Federal agencies to have policies on conflict of interest in Federal awards (in case there are any that do not) and requires non-Federal entities to disclose in writing any potential conflicts of interest (in accordance with applicable policies) to the Federal awarding agency or pass-through entity. 200.113 Mandatory Disclosures Commenters suggested that requirements in procurement regulations for non-Federal entities to disclose in writing any violations of Federal criminal law involving fraud, bribery, or gratuity violations in Title 18 of the United States Code have been effective measures to help prevent or prosecute instances of waste, fraud, and abuse. These commenters recommended that a similar provision be added to this guidance. The COFAR concurred with the recommendation. Commenters also suggested that requiring two signatures on all certifications would be a similarly effective measure to guard against waste, fraud, and abuse. The COFAR considered this, but determined that due to the extensive responsibility for having expert knowledge of the nonFederal entities’ cost accounting that is required in order to make the certifications as they are required now, adding this requirement for an additional person would be a significant source of administrative burden. The E:\FR\FM\26DER3.SGM 26DER3 78596 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations COFAR did not recommend the addition. 3. Subpart C—Pre-Award Requirements Content in the NPG from Subchapters previously designated as C—Notice of Federal Awards and D—Terms and Conditions of Federal Awards was reorganized to provide more streamlined guidance on information that is required to be provided to a nonFederal entity upon receipt of a Federal award. 200.201 Use of Grant Agreements (Including Fixed Amount Awards), Cooperative Agreements, and Contracts In order to broaden a best practice within many Federal agencies’ existing policy and to facilitate implementation of M–13–17, a recently published policy encouraging evidence-based programs, and drawing on existing policies and practices from several Federal agencies, new language has been added to the final guidance to allow for ‘‘Fixed amount’’ awards that rely more on performance than compliance for accountability. (See also Section 200.102 Exceptions and 200.430 Compensation—Personal Services.) tkelley on DSK3SPTVN1PROD with RULES3 200.202 Requirement To Provide Public Notice of Federal Financial Assistance Programs Comments suggested that, in order to facilitate auditor’s ability to ensure that programs are correctly evaluated during audits, this section include the existing requirement for Federal agencies to include in the Catalog of Federal Domestic Assistance whether or not the particular program is subject to Single Audit Requirements in Subpart F. The COFAR recommended this change. The COFAR further recommended that due to uncertain timing regarding the integration of the Catalog of Federal Domestic Assistance into the System for Award Management, the name be left unchanged instead of changed to Catalog of Federal Financial Assistance as proposed. 200.203 Notices of Funding Opportunities As discussed in the ANPG and NPG, the bulk of this section is not a policy change, but rather incorporates the existing requirement for certain categories of information to be published in announcements of public funding opportunities. See OMB Memorandum M–04–01 of October 15, 2003 (http://www.whitehouse.gov/omb/ memoranda_fy04_m04-01), announcing the Federal Register notice that OMB published at 68 FR 58146 (October 8, 2003). VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Commenters did note that the policy change providing a minimum timeframe of 30-days for applications to be available was a helpful idea, but that the proposed timeframe was too short to be of use. Federal agencies had previously indicated that the 90-day timeframe proposed in the ANPG was too long to be practicable given the constraints they often operate under. The COFAR considered these perspectives and recommended the final guidance require all funding opportunities to be available for application for at least 60 days, with an exception for Federal awarding agencies to make a determination to have a less than 60 day availability period but no funding opportunity should be available for less than 30 days. The recommended policy would assure a minimum timeframe that is useful to applicants, and while many Federal agencies would likely continue best practices of a longer application period, they would have the exceptions that they require under exigent circumstances. 200.204 Federal Awarding Agency Review of Merit of Proposals The proposed guidance required that unless prohibited by Federal statute for competitive grants and cooperative agreements, Federal awarding agencies must design and execute a merit review process for applications. This section left the design of the process to the Federal awarding agencies in order to leave as much flexibility as possible to incorporate the requirements of specific programs. This reform was received positively in the proposal, with the comment that it should be separated out from the financial risk review discussed in the following section. The COFAR considered the feedback and recommended the suggested change in organization. 200.205 Federal Awarding Agency Review of Risk Posed by Applicants As proposed, the guidance provides latitude for Federal awarding agencies to design this review as appropriate for the program. As noted in Section 200.101 Applicability, since nothing in this guidance can supersede the requirements of Federal statute, flexibilities such as those enshrined in the Indian Self-Determination and Education Assistance Act (ISDEAA) would not be contravened by this policy. Comments suggested that this section be structured to require a ‘‘framework’’ for reviewing risk, rather than an award-by-award review, where some programs have long histories and a strong understanding of the risks PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 associated with frequent applicants. Evidence from comments suggests that Federal agencies would likely design their risk-based framework to make best use as possible of existing resources such as Single Audit reports—which aligns with comments indicating a preference for use of existing resources from the non-Federal entity community. The COFAR considered the comments and recommended the suggested changes. In addition, the COFAR recommended that the final guidance clarify that, as a baseline for their review, Federal awarding agencies are required by 31 U.S.C. 3321 and 41 U.S.C. 2313 to review information available through any OMB-designated repositories of governmentwide eligibility qualification or financial integrity information, such as Federal Awardee Performance and Integrity Information System (FAPIIS), Dun and Bradstreet, or ‘‘Do Not Pay’’, and also to comply with suspension and debarment requirements at 2 CFR part 180. 200.206 Standard Application Requirements As proposed in the NPG, the guidance includes the requirement that Federal awarding agencies may only use those application information collections approved by OMB under the Paperwork Reduction Act of 1995 and OMB’s implementing regulation in 5 CFR part 1320. Comments were generally in favor of maintaining this longstanding requirement and strengthening enforcement. In addition, OMB and the COFAR have been working closely with the Government Accountability and Transparency Board to identify opportunities for greater standardization of information collections governmentwide. Though this is not a policy change, the COFAR endorsed it as an indicator of work by the COFAR and broader financial assistance community to further standardize governmentwide information collections. It is a further indicator of OMB’s intent to authorize exceptions only on a limited basis. 200.207 Specific Conditions This section of the final guidance was revised in response to comments received to include the list of examples of specific conditions from existing guidance that may be applied to a Federal award. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 4. Subpart D—Post-Award Requirements Subtitle I Standards for Financial and Program Management 200.301 Performance Measurement In this section, commenters expressed concern about the longstanding requirement to relate performance to financial information whenever practicable. This language was not a change from existing policy, but in response to concerns, the COFAR recommended clarifications that this requirement will be met through use of governmentwide standard information collections, and notes that further requirements are as appropriate in accordance with those collections. This means that, for the research community where there are standard information collections for performance that, in accordance with the ‘‘where practicable’’ aspect of the guidance, do not relate financial information to performance data, there will be no such requirement. 200.302 Financial Management Some commenters suggested that to strengthen financial management, nonFederal entities should be required to maintain separate bank accounts for each Federal award. The COFAR considered this but determined that doing so would be excessively administratively burdensome for nonFederal entities, and is not necessary to assure accountability as long as nonFederal entities have appropriate records that meet the standards as described in the guidance. The COFAR recommended further edits to better streamline this section of the guidance on financial management that was previously more scattered throughout the guidance, such as incorporating documentation standards previously in the audit requirements into this section. tkelley on DSK3SPTVN1PROD with RULES3 200.303 Internal Controls In response to comments that suggested that efforts to mitigate risks of waste, fraud, and abuse would be strengthened by a more explicit reference to existing internal control requirements issued by the Government Accountability Office (GAO) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the COFAR recommended including this new section of the guidance which makes explicit non-Federal entity’s responsibilities with regard to effective internal controls. In response to comments expressed regarding controls over sensitive information, the COFAR recommended adding language to make VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 explicit a non-Federal entity’s responsibility for safeguarding protected personally identifiable information (PII) and information designated as sensitive. This new language will result in stronger policies for protecting this information across Federal awards. 200.305 Payment Comments noted with concern that the proposal included language from OMB Circular A–102 which required entities to remit interest payments due to Federal agencies promptly across multiple agencies. The final guidance reinstates and expands applicability of existing language from OMB Circular A– 110 that instructs non-Federal entities to remit interest earned on Federal awards annually to the Department of Health and Human Services Payment Management System. This will result in a much less burdensome annual payment process. In addition, this section has been revised to more accurately reflect the requirements in 31 U.S.C. chapter 65 and implementing Treasury Department regulations in 31 CFR Part 205 Rules And Procedures For Efficient FederalState Funds Transfers. All requirements for payments to states are set forth in 31 CFR Part 205. Accordingly, the payment section now covers payments to states in paragraph (a) and refers to the Treasury requirements. Payment requirements for other non-Federal entities are set forth in the rest of the section. 200.306 Cost Sharing or Matching Many comments were supportive of the proposed language stating that voluntary committed cost sharing is not expected under Federal research proposals and is not to be used as a factor in the review of applications or proposals. Federal agencies recommended adding that such cost sharing may be considered when in accordance with regulation and included in the notice of funding opportunity. In addition, commenters suggested that the final guidance incorporate existing guidance that only mandatory cost sharing or cost sharing specifically submitted in the project budget shall be included in the organized research base for computing indirect (F&A) costs for research projects. The COFAR considered the feedback and recommended the addition. Subtitle III Procurement Standards Subtitle III Procurement Standards takes the majority of the language from OMB Circular A–102. In the NPG, OMB requested comments on whether the PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 78597 inclusion of this language would be administratively burdensome for nonFederal entities currently subject to A– 110. Responses indicated that it could be, and pointed to a few specific areas recommending refinement. The COFAR recommended keeping the A–102 language over the A–110 language because it considered this language to be better able to mitigate the risk of waste, fraud, and abuse. In response to the comments received, the COFAR recommended the specific changes described as follows. 200.318 General Procurement Standards Commenters were concerned about possible administrative burden resulting from the requirement in paragraph (b) to maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions and specifications of their contracts and delivery orders. The COFAR considers this to be a requirement that already exists in OMB Circular A–110, just perhaps not recognized due to different language. The COFAR recommended clarifying the language to require non-Federal entities to maintain ‘‘oversight’’ rather than a ‘‘system’’ to eliminate potential confusion over the standards of the system and to conform more explicitly to existing guidance. Commenters recommended that the conflict of interest language found in paragraph (c) of this section be expanded to provide guidance on conflicts of interest for Federal awards more broadly. The COFAR considered this, but found that many Federal agencies already have conflict of interest policies, and these are fairly specific and vary by Federal agency. The COFAR recommended treating conflict of interest more broadly separately as described in section 200.112 Conflict of Interest, and also recommended expanding the conflict of interest guidance in this section to include organizational conflict of interest. This expansion will require non-Federal entities to have strong policies preventing organizational conflicts of interest which will be used to protect the integrity of procurements under Federal awards and subawards. Commenters were concerned that language in the NPG requiring a review of proposed procurement methods by Federal awarding agencies would add an unnecessary layer of administrative burden to the process. The COFAR concurred and recommended that the language be removed from the final guidance. E:\FR\FM\26DER3.SGM 26DER3 78598 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Language in paragraphs (d), (e), and (f) is longstanding language which has always encouraged state and local governments subject to A–102 to avoid duplicative purchases and to enter into common procurements to promote efficient use of Federal awards. Comments recommended strengthening the language in light of OMB’s 2012 Shared Services Strategy for Federal agencies encouraging the use of ‘‘shared services’’ for increased efficiency. The COFAR recommended strengthening the language in line with comments received. Additional changes as noted below in the cost principles are further intended to facilitate these types of arrangements. Commenters were concerned that the requirement in paragraph (i) requiring the maintenance of records sufficient to detail the history of performance would similarly create administrative burden. The COFAR considered this requirement to be an important one for documenting the integrity of the transaction and recommended it be retained. Commenters were concerned that language in the NPG, which required information concerning any protests of a procurement to be provided to the Federal awarding agency, would create an unnecessary layer of administrative burden to that process. The COFAR concurred, and that language has been removed from the section. tkelley on DSK3SPTVN1PROD with RULES3 200.319 Competition Commenters were concerned that language this section, which prohibits the use of geographic preference in solicitations, would put some nonFederal entities in conflict with the requirements of state law in some cases where state laws require such preferences. The COFAR considered this, but ultimately determined that such preferences could result in the non-Federal entity not making the most efficient possible use of the funds received under a Federal award, and so recommended the language remain unchanged. Where there is a conflict between state or tribal law and this guidance as implemented in regulation with respect to the administration of a Federal award, this Federal guidance prevails. 200.320 Methods of Procurement To Be Followed Commenters were concerned that the methods of procurement this section might be overly proscriptive and might prevent entities from making purchases from specific contractors where such purchases were necessary, especially for example, for the integrity of a research VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 project. The COFAR considered the language and recommended that with minor clarifications these methods, which include sole source procurements with justification, be retained as they should be inclusive enough to account for such situations. 200.322 Procurement of Recovered Materials The COFAR also recommended including language in paragraph (f) on the procurement of recovered material to reiterate non-Federal entities’ obligations under section 6002 of the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act. Subtitle IV Performance and Financial Monitoring and Reporting 200.328 Monitoring and Reporting Program Performance Some language in this section that had been included in the NPG aligning requirements with those in OMB Circular A–11 were found by Federal agencies to be overly broad, and have instead been replaced by more narrow language in section 200.102 Exceptions. The more specific language is designed to encourage evidence based program design. The final guidance also includes language from existing guidance that had been dropped from the NPG noting that reporting should not be required more frequently than quarterly. In addition, similar language to that in section 200.501 on Standards for Performance and Financial Management notes that performance reports are subject to the Paperwork Reduction Act requirements and should use OMBapproved governmentwide information collections. 200.329 Reporting on Real Property The language in this section is based on the supplementary information provided in the purpose section of the Final Notice of the Real Property Status Report (RPSR) form SF–429 available at 75 FR 56540 published September 16, 2010. Subtitle V Subrecipient Monitoring and Management This section was proposed in the NPG as section 200.501, but the COFAR recommended it be reordered in the final guidance for a more logical flow of post-award requirements. 200.331 Requirements for PassThrough Entities Many commenters were concerned that this section could expand the monitoring requirements for PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 subrecipients significantly and result in increased administrative burden. In addition to re-ordering certain elements of the NPG language for clarity as some commenters suggested, the COFAR recommended the following further modifications: In paragraph (a), data elements that are required to be included in subawards are aligned with those required to be included by Federal awarding agencies in Federal awards in section 200.210 Information Contained In A Federal Award. Comments on the proposed language requiring pass-through entities to include an indirect cost rate in the subaward were highly positive, but suggested that the de minimis rate as outlined in section 200.414 Indirect (F&A) Costs should be higher. Commenters were concerned that passthrough entities might decline to negotiate, and this would make the de minimis rate more likely a de facto rate for subrecipients. The COFAR considered this feedback but determined that as an automatic rate without any review of actual costs, the rate should remain at the conservative levels discussed in that section to protect the Federal government against excessive over reimbursement. Comments noted concern that as stated the language broadened passthrough entity responsibility for monitoring subrecipients particularly with respect to audit follow-up. The COFAR recommended modifications to clarify that the required monitoring of subrecipients is limited to reviewing any performance and financial reports that the pass-through entity has decided to require in order to meet their own requirements under the terms and conditions of the Federal award, following up, ensuring corrective action, and issuing management decisions on weaknesses found through audits only when those findings pertain to Federal award funds provided to the subrecipient from the pass-through entity. This is consistent with existing requirements. Language is further modified to clarify that pass-through entities must only verify, rather than ensure, that a subrecipient has an audit as required by Subpart F Audit Requirements. As a result of these clarifications, the requirements for subrecipient monitoring are substantively unchanged from existing guidance. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Subtitle VI Access require modifications to programs. The COFAR recommended these additions. Record Retention and 200.333 Retention Requirements for Records The final guidance maintains and clarifies the existing requirement that records be retained for three years from the date of submission of the final expenditure report. The COFAR considered alternative scenarios proposed by commenters, and recommended that the proposed language be retained. The COFAR noted that this length can be extended if required by statute or with an exception from OMB, but that in most cases it is sufficient. 200.335 Methods for Collection, Transmission and Storage of Information In addition, in response to the May 2013 Executive Order on Making Open and Machine Readable the New Default for Government Information, as well as to comments requesting that the guidance in general be updated to reflect 21st century methods of communicating, the COFAR recommended a new paragraph be added. The new paragraph (c) adds language on methods for the collection, transmission, and storage of information, which combines language that had been previously scattered throughout the guidance to make clear that electronic, open, machine readable information is preferable to paper, as long as there are appropriate and reasonable internal controls in place to safeguard against any inappropriate alteration of records. Subtitle VII Remedies for Noncompliance tkelley on DSK3SPTVN1PROD with RULES3 200.338 Remedies for Noncompliance Commenters suggested that this section, which was titled ‘‘Termination and Enforcement’’ in the NPG, should be expanded to more accurately describe the actions that could be taken under enforcement. The COFAR recommended this change. 200.339 Termination Commenters suggested that language should be added to allow for Federal agency termination for cause, because situations often arise beyond the Federal agency’s or non-Federal entity’s control which may require awards to be terminated. This language would prove useful in situations like those encountered during implementation of the Recovery Act or Sequestration, where congressional mandates encouraged expedited performance, or changes to appropriated amounts VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 200.343 Closeout The proposal included expanded guidance on closeout, to help strengthen Federal agencies policies for this process in line with OMB’s July 2012 Controller Alert. Commenters recommended this language be modified to extend the closeout period for an award from 180 days to the more realistic timeframe of one year, in addition to the clarifying language that non-Federal entities have 90 days from the end date of the period of performance to submit all final reports, and also to clarify that the one-year period begins once final reports have been received from the non-Federal entity. The COFAR recommended the addition. 200.344 Post-Closeout Adjustments and Continuing Responsibilities Commenters suggested that language be added to limit the period when Federal agencies may disallow costs to within the three-year record retention period required under section 506 Record Retention and Access. The COFAR recommended the addition. 200.345 Collection Of Amounts Due As with section 200.343 Post-Closeout Adjustments and Continuing Responsibilities, commenters recommended language to limit the collection period to within the threeyear record retention period required under section 200.333 Retention Requirements for Records. The COFAR noted that the Federal government has the right to collect amounts due at any point, and while recognizing that a determination of disallowance should be made within the record retention period, did not recommend the addition in this section. Section B: Subpart E and Appendices III–VIII: Cost Principles. Reforms to Cost Principles (Circulars A–21, A–87, and A–122) This section discusses proposed changes to the OMB cost-principle circulars that have been placed at 2 CFR Parts 220, 225, and 215 (Circulars A–21, Cost Principles for Educational Institutions; Circular A–87, Cost Principles for State, Local and Indian Tribal Governments; and Circular A– 122, Cost Principles for Non-Profit Organizations). The COFAR considered adding the hospital cost principles to the guidance, but decided that doing so would require in depth further review that would be best done as part of a separate process at a later date. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 78599 200.400 Policy Guide Commenters requested that the final guidance include language which was previously included in OMB Circular A–21 to address the dual role of students in research at IHEs. The COFAR recommended that a slightly updated version of the language be included. Other commenters suggested that to better mitigate the risks of waste, fraud, and abuse, the final guidance include language to make explicit that nonFederal entities are not permitted to earn or keep any profit resulting from Federal awards, unless expressly authorized by the applicable award conditions. The COFAR recommended the language be included. 200.401 Application At the suggestion of commenters, the COFAR recommended this section include additional language to clarify that when a non-Federal entity has a Cost Accounting Standards (CAS) covered contract subject to the requirements of 48 CFR 995, those requirements do not automatically extend beyond the covered contract to other awards, though the non-Federal entity is required to maintain consistent application of cost accounting standards. 200.407 Prior Written Approval (Prior Approval) In response to comments, the COFAR recommended the title of this section be changed from ‘‘Advance Understanding’’ to more closely mirror the language used in the guidance. In addition, a list of instances of sections that discuss conditions under which prior approval is required is included to ensure that these requirements are transparent and to reduce burden by providing both Federal agencies and non-Federal entities a complete listing of where all these types of requirements may be found. 200.413 Direct Costs Paragraph (d) includes the language in this section that was proposed as a change to clarify the circumstances under which it is allowable to directly charge administrative support Costs. This language was proposed in order to address an ongoing inconsistency in the definition of direct costs; which required administrative costs to be charged indirectly but otherwise provided that costs are direct when they may be specifically allocated to one award; regardless of what activities they support. Many commenters were supportive of the change with some concerns about E:\FR\FM\26DER3.SGM 26DER3 78600 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 the way it was proposed. Some commenters were concerned that the conditions as originally articulated were not sufficiently clear for auditors to determine whether a directly charged administrative cost was allowable or not. Other commenters were concerned that the requirement to have these costs approved in the budget was more restrictive than otherwise standard rebudgeting practices and would unduly constrain implementation. The COFAR considered the issue and recommended adding explicit language to clarify that when these costs are allowable, they must have the prior approval of the Federal awarding agency. Additional language was added to allow for this approval after the initial budget approval in order to allow for flexibility in implementation. The clarified language addresses both sets of concerns; clarifying conditions for allowability while providing additional flexibility in project management. 200.414 Indirect (F&A) Costs In response to a wide range of feedback from diverse stakeholders, Section 615 Indirect Costs contained a number of proposals for making indirect costs more transparent and consistent for non-Federal entities. These were well received by most stakeholders who submitted comments, and have mostly been retained as proposed, with some modifications. Language in paragraph (c) provides for the consistent application of negotiated indirect cost rates, and articulates the conditions under which a Federal awarding agency may use a different rate. These conditions include approval of the Federal awarding agency head (as delegated per standard delegations of authority) based on documented justification, the public availability of established policies for determinations to use other than negotiated rates, the inclusion of notice of such a decision in the announcement of funding opportunity, as well as in any pre-announcement outreach, and notification to OMB of the decision. Comments received regarding these proposals were mostly positive, and indicated that these provisions would likely lead to greater consistency, and transparency in the application of indirect cost rates governmentwide. Some commenters recommended that for even greater consistency decisions about the use of rates be subject to OMB approval rather than Federal agency approval. The COFAR considered this, but ultimately recommends that responsibility for administering Federal financial assistance programs continue to rest with the Federal awarding VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 agencies, and that the conditions set by OMB for these determinations are stringent enough to ensure that they do not occur without strong justification. The COFAR did not recommend the change. Language in paragraph (f) provides that any non-Federal entity that has never had a negotiated indirect cost rate may use a de minimis rate of 10% of modified total direct costs. Commenters recommended that this rate should be higher—either at 15% or 20% respectively. They were concerned that because for smaller organizations the capacity to conduct full negotiations is often out of reach, this rate will most likely be the de facto rate rather than the de minimis rate. The COFAR considered the possibility of raising this rate, but ultimately recommended that as an automatic de minimis rate without analysis of actual costs it should stay at a conservative level in order to minimize the possibility that the Federal government over reimburse for these costs. Additional comments also suggested that to further reduce burden for both recipients and the Federal government, this de minimis rate be allowable for use indefinitely, and the COFAR concurred. Language in paragraph (g) provides an option for entities with an approved federally negotiated indirect cost rate to apply for a one-time extension without further negotiation subject to the approval of the negotiating Federal agency. Commenters responded positively to this option, though some suggested that the extension period be longer, or that additional extensions be allowable. The COFAR considered these, but found it important to renegotiate after an initial 4-year extension period to ensure that such rates continue to be based on actual costs. The COFAR recommended this provision remain as proposed. 200.415 Required Certifications Comments recommended that in order to better mitigate risks of waste, fraud, and abuse, required certification language be strengthened to include specific language acknowledging the statutory consequences of false certifications. The COFAR concurred with the recommendation. 200.419 Cost Accounting Standards and Disclosure Statement The NPG proposed deleting the requirements that apply only to IHEs to comply with the Federal Acquisition Regulation (FAR) Cost Accounting Standards (CAS) and to file a Disclosure Statement when their Federal awards total $25 million or more. Some PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 commenters responded favorably that this would reduce a source of administrative burden, but others were concerned, stating that this disclosure statement was a critical tool to mitigating waste, fraud, and abuse and opposed its elimination. Since the most likely source of burden occurs when an entity crosses the threshold for the first time, the COFAR recommended reinstating the requirement at the new threshold of $50 million to be consistent with current FAR requirements. The COFAR further noted that for most IHEs that have already passed the threshold, the biggest source of burden associated with these requirements arises from uncertainty when awaiting Federal agency approval for a submitted change in a Disclosure Statement. In response, instead of requiring Federal agency approval for changes, the COFAR recommended the final guidance require only that non-Federal entities submit their changes six months in advance of implementing a change. If they receive no indication of an extension of the review period or of concern from a Federal agency, they may proceed with the implementation without further delay. The COFAR’s recommended solution would thus continue to require use a valuable tool for mitigating risks of waste, fraud, and abuse while eliminating key sources of administrative burden and uncertainty for non-Federal entities that can lead to unnecessary audit findings. Subtitle VI General Provisions for Selected Items of Cost Some commenters noted concern that the current item of cost for ‘‘Communication costs’’ had been deleted from the proposed guidance. The COFAR considered this, but considered communications costs to be straightforward enough to be easily covered by the guidance in Subtitle II: Basic Considerations. The COFAR notes that all items not specifically covered in the items of cost are subject to the guidance in Subtitle II Basic Considerations, and that this section should be read as a guiding framework for all specific discussions of cost in the section that follow. 200.421 Advertising and Public Relations Commenters noted that it was important that costs relating to advertising and public relations allow for costs of advertising program outreach and other specific costs necessary to meet the requirements of the federal award. The COFAR recommended the addition. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 200.422 Advisory Councils Commenters were concerned that the proposed guidance disallowed previously allowable costs for documented advisory council costs that benefited a federal award. The COFAR reviewed the language and noted that the revised language is clarifying in nature and does not substantively change the existing requirements, noting that these costs are still allowable with prior approval from the Federal awarding agency. The COFAR did not recommend a change. 200.425 Audit Services Commenters recommended that this section be clarified to include reference to a non-Federal entity’s fiscal year in noting that when Federal awards total less than $750,000 the non-Federal entity is exempted from having a single audit. The commenters wanted the addition of the fiscal year clause in order to be consistent with Subpart F. The COFAR recommended the addition. Commenters noted concern for language which stated that other audit costs were allowable if included in an approved cost allocation plan or an indirect cost proposal, or if it was approved by the Federal awarding agency as a direct cost to the Federal award. Upon further review, the COFAR notes that though this language allowing costs of other audits has been in place for years, it is not consistent with the Single Audit Act, and so recommended deleting it. Instead, the COFAR recommends language that allows the costs of a financial statement audit for a non-Federal entity that does not currently have a Federal award when included in the indirect cost pool as part of a cost allocation plan or indirect cost proposal. These audits may be useful to the Federal agency negotiating an indirect cost rate, and the COFAR does not believe them to be in conflict with the Single Audit Act. The COFAR further recommends clarification that agreed-uponprocedures are defined in section 2(A) of the GAGAS attestation standards, and this section will be aligned with the types of compliance requirements in the compliance supplement once updated. tkelley on DSK3SPTVN1PROD with RULES3 200.428 Collections of Improper Payments The COFAR recommends that the last sentence of this section, which describes the collection of improper payments when time elapses between the collection of funds from entities and their expenditure, be deleted because it is redundant and duplicates what is said VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 in section 200.305 Payment, which is also cross-referenced. The result is more streamlined language that articulates the requirement more clearly. 200.430 Compensation—Personal Services The COFAR began review of these requirements under this reform effort based on feedback that the existing requirements had become extremely administratively burdensome, and as written, the guidance did not allow for advances in technology, record keeping, and internal controls, which allow nonFederal entities to document these costs in increasingly efficient and sophisticated ways. In addition, the COFAR considered the long-term goal of tying justification for salaries to the achievement of programmatic objectives rather than measurement of effort (hours) expended. Though such performance-oriented reporting is not currently possible across the diverse suite of Federal assistance programs, the advances noted above allow for alternatives to the current requirements that can provide an even higher standard of accountability without burdensome process requirements. The COFAR received many comments on this proposed language indicating that the changes had potential for positive impact but recommended modifications to the proposed language. Comments suggested that language be added to include more detail as to the general explanation of what compensation for personal services is allowable. The COFAR considered the current level of detail to be sufficient, especially since any personal services not listed in this section would be addressed in section 200.431 Compensation—Fringe Benefits. Commenters suggested that compensation surveys providing data representative of the labor market involved were inferior to the other methods described in the NPG for evaluating the reasonableness of compensation for personal services. Others commented that with regard to the basis for salary rates, unless there is prior approval by the Federal awarding agency, charges of a faculty member’s salary to a Federal award should not exceed the proportionate share of the institutional base salary for the period during which the faculty member worked on the award. The COFAR recommended additions to support both proposals. Commenters recommended deleting the specific reference to conflict of interest policies, noting that there is no reason to highlight any one institutional PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 78601 policy in this section over others. They also recommended deleting the rest of the section allowing Federal agencies to negotiate alternative arrangements when non-Federal entity policy is deemed inadequate. Commenters also recommended the deletion language which provided special consideration in determining allowability for any change in the non-Federal entity’s compensation policy because they found it redundant to other language describing the compensation for personal services and the reasonableness with which these services need to be proven in order for compensation to be expected. The COFAR concurred with the recommended deletion of conflict of interest policy but did not recommended further changes on special considerations which they found to provide important provisions that mitigate the risks of waste, fraud, and abuse. Another comment recommended deletion of language on allowable incentive compensation because the commenter believed this provision has resulted in cost disallowances and is burdensome. The COFAR disagreed and recommended that the section stay the way it was originally proposed. Comments noted with concern that that nonprofit organizations are not subject to the same rules as other types of non-Federal entities. The COFAR considered that due to the unique facets of nonprofit organizations, these flexibilities are important, and recommended that paragraph (g) stay the way it was originally proposed. Commenters proposed major changes to paragraph (h), which provides provisions specific to IHEs describing conditions that require special consideration and possible limitations in determining allowable compensation costs. They recommended reorganization of the section for clarity and an explicit recognition of Institutional Base Salary rate (a type of policy most IHEs have well defined) instead of references to a more loosely defined ‘‘base rate’’. The COFAR concurred and recommended most of the suggested changes. Many diverse stakeholders submitted comments on paragraph (i) Standards for Documentation of Personnel Expenses (also known informally as ‘‘time and effort reporting’’). Many agreed on the need for clearer standards of the internal controls around these charges. Many commenters also requested additional flexibility in how these standards could be implemented, while others recommended stricter uniformity in the provision of specific E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78602 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations certification language that would better prevent and facilitate prosecution of fraud. Some commenters that allowance for costs based on estimates could result in a lack of sufficient documentation that the costs were in accordance with the work performed. The COFAR agreed with the recommendations on the risks in this area and the need for a strong system of internal controls to document compliance. This final guidance requires non-Federal entities to comply with a stringent framework of internal control objectives and requirements. The guidance also requires that when interim charges are based on budget estimates, the non-Federal entity’s system of internal controls must include processes to ensure necessary adjustments are made such that the final amount charged to Federal awards is proper. The COFAR considered recommendations from commenters to include specific certification language, but was concerned that requiring specific language at this level would result in audit findings more likely to be based on incorrect documentation rather than uncovering weaknesses in internal control or instances of fraud. Further, the COFAR notes that other certifications included by recipients in their applications and indirect cost rate agreements provide a layer of assurance that can be used in preventing and prosecuting instances of fraud. The COFAR believes this focus on overall internal controls provides greater accountability as the nonFederal entity must ensure that the total internal control system for documenting personal expenses provides proper accountability and the auditor must test these internal controls as part of the Single Audit requirements in Subpart F. While many non-Federal entities may still find that existing procedures in place such as personal activity reports and similar documentation are the best method for them to meet the internal control requirements, this final guidance does not specifically require them. The focus in this final guidance on overall internal controls mitigates the risk that a non-Federal entity or their auditor will focus solely on prescribed procedures such as reports, certifications, or certification time periods which alone may be ineffective in assuring full accountability. While this approach may increase burden on non-Federal entities with weak internal controls, the COFAR believes overall it will reduce burden by providing non-Federal entities the ability to implement the internal control systems and business processes that best VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 fit a non-Federal entity’s needs. Also, placing requirements at the internal control objective level is consistent with the requirements in section 200.303 Internal Controls. Specifically, the COFAR recommended stating explicitly that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. Further clarifications describe the required controls in more detail. The COFAR received positive feedback on proposed language that provided for Federal agencies to approve alternative methods where proposals are submitted that are more performance oriented or in instances of approved blended funding and recommended it be retained. The combined result of these changes is that non-Federal entities have clear high standards for maintaining a strong system of internal controls over their records to justify costs of salaries and wages, and also additional flexibility in the processes they use to meet these standards. This should allow them to be more accountable for these costs at less expense. 200.431 Compensation—Fringe Benefits Commenters recommended eliminating a requirement for awarding agency pre-approval for insurance payments based on consistent entity policy for actual payments to or on behalf of employees or former employees for unemployment compensation or workers’ compensation. The COFAR agreed and recommends removing the language. Based on recommendations from diverse comments, the COFAR recommended clarification of the applicability of GAAP to entities using accrual based accounting. The COFAR also recommends that prior approval by the Federal awarding agency or cognizant agency be given before an indirect cost is charged to the Federal award for abnormal or mass severance pay. Federal agencies recommended that all severance in excess of normal severance policy in accordance with institutional policy or other conditions for allowability discussed in the guidance should be unallowable, not just golden parachute packages. The COFAR recommended the proposed changes to prevent excessive severance payments. Finally, many commenters commended the inclusion of familyrelated leave among the examples of types of leave that may be allowed according to the non-Federal entity’s PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 written policies. The COFAR recommended keeping this language as proposed. 200.432 Conferences The language from the proposed item of costs for External Meetings and Conferences has been clarified to better articulate the limits on the types of gatherings for which these costs are allowable. In addition, the language clarifies that the costs of identifying, but not providing, locally available dependent care options for attendees are allowable. The result is that non-Federal entities have clear limits around conference spending which should limit these costs appropriately. Further, without adding significant cost, the policy encourages familyfriendly practices that will better enable employees of non-Federal entities with dependent care responsibilities to progress in their careers. This is an outcome which was noted in comments as one that is essential for advancing the careers of women in science, technology, engineering and math. Similar outcomes are supported by reforms to 200.474 Travel Costs and 200.431 Compensation—Fringe Benefits. 200.433 Contingency Provisions Many commenters noted that this proposed section made positive and helpful clarifications which enable a better understanding of how contingency costs may be budgeted and charged. Some commenters recommended additional provisions for further clarity on the types of costs that are allowable for contingencies, and recommended additional controls on how Federal agencies provide oversight over these funds as part of their Federal awards. In particular, commenters suggested adding a requirement to track funds that are spent as contingency funds throughout the non-Federal entity’s records. The COFAR reviewed the language, and concluded that it does provide sufficient controls to Federal agencies to manage Federal awards. The COFAR noted that: (i) though a diversity of techniques are available to establish contingency estimates, the estimates must be based on broadly-accepted cost estimating methodologies, (ii) budgeted amounts would be explicitly subject to Federal agency approval at time of award, (iii) funds would not be drawn down unless in accordance with all the other applicable provisions of this guidance (such as Subtitle II Basic Considerations), and (iv) actual costs incurred must be verifiable from the non-Federal entity’s records. The E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations COFAR considered this last requirement to be sufficient for tracking the use of funds, as contingency funds should most properly be charged not as ‘‘contingency funds’’ specifically, but according to the cost category into which they would naturally fall. The COFAR did not recommend any changes to the proposed language. recipients from recovering depreciation on assets that might be purchased under non-Federal awards, but nevertheless used at least in part to support a Federal award. This exclusion would discourage efficiencies to Federal awards that could otherwise be gained through shared use of these assets. The COFAR agreed and recommended the proposed change. 200.434 Contributions and Donations Comments suggested that the value of a donated item, whether it is a good or a building, should not be charged to a Federal award as either a direct or indirect cost. The COFAR concurred and recommended changes accordingly. The COFAR also recommended clarifying that depreciation on donated assets is permitted in accordance with 200.436 Depreciation, as long as the donated property is not counted towards cost sharing or matching requirements. The COFAR also recommended consolidation of much this section with section 200.306 Cost Sharing Or Matching. 200.437 Employee Health and Welfare Costs Commenters suggested that allowing costs to improve ‘‘morale’’ in this item as proposed would be difficult to distinguish from the language in the following item that disallows entertainment costs, potentially resulting in opportunities for waste, fraud, and abuse. The COFAR concurred and, to better mitigate these risks recommended eliminating references to morale, limiting this item to those for Health and Welfare as established in the nonFederal entity’s documented policies. tkelley on DSK3SPTVN1PROD with RULES3 200.435 Defense and Prosecution of Criminal and Civil Proceedings, Claims, Appeals and Patent Infringements Commenters recommended that that all costs related to defense of criminal, civil, or administrative proceedings should be completely unallowable, regardless of disposition. The COFAR considered this but recommended keeping the language as it was originally proposed in order to preserve a wrongly accused defendant’s ability to charge the Federal award for legal costs related to charges or claims for which the defendant ultimately receives a favorable disposition. 200.436 Depreciation Commenters suggested that allowable compensation for the use of their buildings, capital improvements, equipment, and software projects should be based on capitalization in accordance with GAAP instead of the Government Accounting Standards Board Statement Number 51. The COFAR agreed and recommended changing the language to reflect this change. The COFAR also recommend adding clarification that an asset donated to the non-Federal entity by a third party will have its fair market value documented at the time of the donation and shall be considered as the acquisition cost. Such assets may be depreciated or claimed as matching but not both. Commenters noted that proposed language on depreciating assets donated by a third party would prevent VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 200.438 Entertainment Costs Many diverse commenters noted the potential for conflicting guidance between this section as proposed and the guidance under 200.437 Employee Health And Welfare Costs, as well as confusion about exceptions for entertainment under the terms and conditions of the award. In addition to the clarifications to 200.437 Employee Health And Welfare Costs, the COFAR recommended clarifying that any exceptions require a programmatic purpose as well as written prior approval from the Federal awarding agency. 200.439 Equipment and Other Capital Expenditures Many diverse commenters noted opportunity for clarification in this section. The COFAR recommended addressing most of these either in consolidated definitions in the definitions section or through appropriate consolidations with the language in Subpart D—Post Federal Award Requirements, section Subtitle II Property Standards. 200.441 Fines, Penalties, Damages and Other Settlements Commenters suggested that the list of laws under which failure to comply could result in costs of fines and other penalties should include Tribal law. The COFAR recommended the addition. Commenters suggested that costs resulting from ‘‘alleged violations’’ and not just ‘‘violations’’ should be unallowable, except when they result directly from complying with the terms PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 78603 of a Federal award or are approved in advance by the Federal awarding agency. The COFAR recommended the addition. 200.444 General Costs of Government Commenters suggested that to be consistent with current policy this item should include language that allows up to 50% of the portion of salaries and wages for the chief executive and his or her staff supporting Federal awards for Indian Tribes and Councils of Government to be allowable as indirect costs without further justification. The COFAR recommended the addition. 200.445 Goods or Services for Personal Use Diverse stakeholders suggested additional types of costs that could be explicitly discussed under this item. The COFAR considered these but found them to be items either addressed elsewhere in the guidance or covered under Subpart II Basic Considerations. The COFAR did not recommend changes to this section. 200.446 Idle Facilities and Idle Capacity Commenters requested further clarification on the circumstances under which costs of idle facilities are unallowable versus allowable. The COFAR recommended changes for clarification and to ensure sure that these fluctuations are allocated properly to all benefiting programs. Other commenters suggested that the one year time limit that the guidance provides on funding idle facilities may be arbitrary, and noted that often the projects which require this flexibility are multi-year projects, where a two year horizon might be considered an extremely aggressive timeline. The COFAR considered that the exact requirement is for a ‘‘reasonable period of time, ordinarily not to exceed one year’’, which provides some flexibility on the timeline when needed, while still setting expectations of limits. The COFAR did not recommend changes to this language. 200.447 Insurance and Indemnification Commenters suggested that policy allowing Federal agencies to choose whether to participate in losses not covered by the recipient’s self-insurance reserves is inappropriate and burdensome to entities, and also contradicts other provisions in the language. The COFAR agreed and recommended that the sentence be deleted. The COFAR also recommended deleting E:\FR\FM\26DER3.SGM 26DER3 78604 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations policy that the Federal government will participate in actual losses of a selfinsurance fund that are in excess of the reserves, to protect the Federal government from inappropriate exposure to these types of costs. Commenters recommended that language discussing fees paid to or on behalf of employees or former employees for worker’s compensation, unemployment compensation, be moved to the section on fringe benefits. The COFAR recommended the language be moved. tkelley on DSK3SPTVN1PROD with RULES3 200.448 Intellectual Property One comment requested use of a more commonly understood phrase than ‘‘searching the art’’, which is currently used in the guidance. The COFAR determined that this is a term of art and is the appropriate phrase for this guidance. The COFAR did not recommend a change. 200.449 Interest Commenters noted that they preferred the organization of the language used in the A–21 circular, suggesting that this section begin with the general principle that costs incurred for interest on borrowed capital, temporary use of endowment funds, or the use of the nonFederal entity’s own funds are unallowable, followed by exceptions. The COFAR recommended the change in organization. Commenters responded positively to the more explicit inclusion of information technology in the definition of capital assets. They also recommended that the date for the provision to take effect be based on a non-Federal entity’s fiscal year rather than a specific date. The COFAR recommended moving this and all other definitions to the streamlined definitions section and concurred with the adjustment to the effective date. Some commenters suggested recipient’s limits for claims for federal reimbursement of interest costs to the least expensive alternative and that criterion for the non-Federal entity to make an equity contribution of at least 25% of the purchase debt arrangements over a million dollars be removed. Other commenters suggested that these should remain in order to protect Federal government interests. The COFAR did not recommend removing these provisions. Commenters suggested that extra criteria for nonprofit organizations is not appropriate and ask that all the conditions specifically for nonprofit organizations be removed. The COFAR recommended deleting all but one of specific conditions for nonprofit VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 organizations. The COFAR recommended keeping the provision that requires that the non-profit organization had to have incurred the cost after September 29, 1995, in connection with acquisitions of capital assets that occurred after the data. The COFAR also recommended deleting any additional conditions for non-profit organizations that are duplicative of CAS. Commenters suggested adding a provision to ensure that interest attributable to a fully depreciated asset is unallowable. The COFAR recommended the addition. 200.453 Materials and Supplies Costs, Including Costs Of Computing Devices The COFAR recommended moving the definition of supplies to the definition section, and feedback on that definition is discussed there. 200.454 Memberships, Subscriptions, and Professional Activity Costs Commenters noted that it was unclear what was meant by ‘‘substantially engaged in lobbying’’. The COFAR recommended substituting ‘‘whose principal purpose is lobbying’’ and adding a citation to section 200.450 Lobbying to clarify. 200.455 Organization Costs Commenters recommended parity in application of this item across types of non-Federal entities. The COFAR recommended making this section applicable to all stakeholders. 200.456 Participant Support Costs The proposed guidance included language on participant support costs that expands to all entities a provision which previously applied only to nonprofit entities, though moves the definition of these costs to the definition section. The proposal received mostly positive feedback from commenters. The COFAR recommended keeping this language and that treatment of participant support costs in the definition of modified total direct costs and appendices on indirect cost rates be modified in accordance with this guidance. 200.460 Proposal Costs Many comments were supportive of the proposed language, though some were concerned that the language allowing for other than indirect treatment with prior Federal agency approval could lead to inconsistencies. The COFAR recommended deleting this language to improve consistency and allow proposal costs to be charged only as an indirect cost. PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 200.461 Publication and Printing Costs Commenters suggested that language should be added to resolve a longstanding issue with charges necessary to publish research results, which typically occur after expiration, but are otherwise allowable costs of an award. The COFAR concurred with the comments and recommended additional language to clarify that non-Federal entities may charge the Federal award before closeout for the costs of publication or sharing of research results if the costs are not incurred during the period of performance of the Federal award. 200.463 Recruiting Costs Commenters suggested that since ‘‘special emoluments, fringe benefits, and salary allowances’’ that do not meet the test of reasonableness or do not conform with established practices of the entity would be unallowable regardless of where the personnel are currently employed; language should be clarified accordingly with the deletion of ‘‘from other non-federal entities’’ after the list of benefits that attract professional personnel. Commenters also noted that modifications were needed to clarify that when relocation costs incurred with the recruitment of a new employee have been funded in whole or in part as a direct cost to the federal award, and the newly hired employee resigns for reasons within the employee’s control within 12 months after hire, the non-Federal entity will be required to refund or credit only the Federal share of such relocation costs to the Federal government. The COFAR concurred with the suggested change. Commenters suggested that this section in its proposed form (and in existing guidance) fails to account for costs associated with obtaining critical foreign research skills and proposed additional language and standards to remediate the problem. Commenters recommended that costs associated with visas when critical skills are needed for a specific award should be allowed. The COFAR concurred with the recommended change. 200.464 Relocation Costs of Employees Commenters suggested that the costs of the ownership of the vacant former home after the settlement or lease date of the employees new permanent home should only be paid for up to 6 months to eliminate excessive charges to the Federal government. The COFAR concurred with the recommended change. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 200.465 Rental Costs of Real Property and Equipment Commenters requested that an exception for Indian tribes to the provisions that allow ‘‘less-than-arm’slength’’ transactions only up to the actual costs of ownership. They suggest that this is a matter of tribal autonomy and a way to better support tribal enterprises. The COFAR considered the suggestion but determined that despite the unique government-to-government relationship with Indian tribes and the importance of tribal autonomy, allowing these transactions at higher than the costs of actual ownership would result in undue increases in costs to the Federal government. The COFAR did not recommend the change. Commenters recommended that rental costs under ‘‘sale and lease back’’ arrangements should only be allowable up to the actual costs of ownership, and not up to the amount that would be allowed had the entity continued to own the property. They also commented that language explaining that for clarity rental costs under ‘‘less-than-arm’s length’’ leases are allowable only up to the amount as explained in paragraph (2) need not include that the costs are allowable up to the amount had the title to the property vested in the institution. Commenters suggested that the provisions of the General Accepted Accounting Principles should determine whether a lease is a capital lease or not. Commenters also suggested that language should be added prohibiting the charge of home office space and utilities charged to a Federal award. The COFAR recommended these proposed changes. tkelley on DSK3SPTVN1PROD with RULES3 200.466 Scholarships and Student Aid Costs Commenters suggested that this section should reflect the dual role of students and that the language should make clear that voluntary committed cost sharing should not be used as a factor in the review of applications. The COFAR concurred with the recommended clarifications, but recommended they be more appropriately added in section 200.400 Policy Guide, and section 200.306 Cost Sharing Or Matching, respectively. 200.467 Selling and Marketing Costs Commenters suggested that a crossreference to section 200.460 Proposal Costs should be added to the existing cross reference to section 200.421 Advertising and Public Relations as allowable exceptions to the otherwise unallowable costs covered by this section. The COFAR concurred with the recommendation. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 200.468 Specialized Service Facilities Commenters suggested introducing the concept of an ‘‘equipment replacement fund’’. Their concern is that when federally-funded equipment is being used, the depreciation charges on this equipment are not allowed to be included in the rates charged to users of the equipment. Consequently, this restricts the ability of the non-Federal entity to recover funds that could be used to replace the equipment in the future. Allowing non-Federal entities to establish an ‘‘equipment replacement fund’’ would help to ensure that institutions are in a position to fund future equipment without having to rely on equipment grants from research funding agencies. The COFAR considered this suggestion, but was concerned that allowing such costs would inappropriately increase costs under Federal awards and reduce the benefits intended to be achieved by the Federal award. The COFAR did not recommend the change. Commenters suggested that examples of costs of services provided by highly complex or specialized facilities operated by the entity are not needed. The COFAR considered the suggestion and although generally throughout the guidance has declined to include specific examples recommended that in this case the examples be kept as an important way to illustrate the intent of the language. 200.469 Student Activity Costs Upon review of this section, the COFAR recommended that though it primarily applies to IHEs, expanding this language to all entities would further mitigate risks of waste, fraud, and abuse. 200.471 Termination Costs Commenters suggested that the cross reference to an exception for reimbursement for a predetermined amount under proposed Subpart D— Post Federal Award Requirements, Subtitle II Property Standards did not exist in the document and recommended the cross-reference be deleted. Commenters suggested that while there is no substantive change in the proposed guidance from the existing circulars, they are unsure why indirect costs are being specifically cited with regard to settlement expenses, and were concerned the citation could be misinterpreted as somehow limiting the allowable indirect costs to only a portion of termination costs. They propose deleting the reference. The COFAR recommended making both proposed deletions. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 78605 200.472 Training and Education Costs Commenters indicated concern that the language allowing the costs of training and education for employee development is too open-ended and recommended more restrictive language. The COFAR considered the suggestion, but believes that the basic considerations for allowability in Subtitle II Basic Considerations provide adequate restrictions that will appropriately limit the risk of waste, fraud, and abuse. The COFAR did not recommend a change. 200.474 Travel Costs Commenters suggested that the proposed language allowing temporary dependent care costs was too openended and could increase risks of waste, fraud, and abuse. The COFAR concurred with the concerns raised and modified the language to provide more specific parameters for the conditions under which these costs are allowable. The result is language that provides, under specific and limited circumstances, a family-friendly policy that should allow for individuals with dependent care responsibilities to better balance their responsibilities to both their families and the Federal award. 200.475 Trustees Commenters noted that this section reverses existing language from OMB Circulars A–21 and A–122 where travel and subsistence costs of trustees, or directors, are allowable under certain conditions. They proposed that past policy from A–21 and A–122 be reinstated. The COFAR concurred and recommended that the costs for the nonprofit community and institutions be allowable, given those costs are also in line with section 200.474 Travel Costs. Appendix III Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs), paragraph B.4.c. Commenters noted that while many of those who do not currently benefit from the 1.3% utility cost adjustment currently allowed under A–21 appreciated the proposed new language, they would further appreciate the opportunity to suggest alternative indices to measure ‘‘effective square footage’’. The COFAR considered this, but determined that such open ended adjustments to costs would result in increased risk of waste, fraud, and abuse. Further, some commenters expressed concern about the total costs E:\FR\FM\26DER3.SGM 26DER3 78606 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations to Federal agencies that could result from these charges, particularly given the lack of conclusive data available to accurately project these costs. The COFAR concurred with the concern, and so recommended that while these charges should be based on actual costs, the amount recoverable should be limited to an amount equal to 1.3% of the IHE’s indirect cost rate until such time as OMB and Federal agencies can better understand the cost implications of full reimbursement of actual costs and the potential implication for Federal programs. tkelley on DSK3SPTVN1PROD with RULES3 Appendix V State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans Under existing requirements, any ‘‘major local government’’ is required to submit a Cost Allocation Plan to its cognizant agency for indirect cost on an annual basis in order to claim its central services costs against Federal awards. The ‘‘major local governments’’ subject to this requirement, along with each cognizant agency assignment, are listed in the Federal Register notice dated January 6, 1986 (available at: http:// www.whitehouse.gov/sites/default/files/ omb/assets/financial_pdf/fr-notice_cost _negotiation_010686.pdf). The proposed guidance set the definition of ‘‘major local government’’ at $100 million in order to more accurately reflect the updated universe of such governments which has changed since 1986, and also to provide a threshold that will remain in place as the sizes of individual local governments fluctuates over time. Commenters inquired whether the new definition supersedes the 1986 listing. The COFAR noted the new definition of major local government does supersede the 1986 listing. The COFAR recommended adding this notice to the list of supersessions in section 200.104 Rescission and Supersession. In addition, the COFAR recommended a change to the guidance on cognizant agencies. The policy would remain as it is for indirect cost rates, with cognizance being based on direct Federal awards. However, for local governments’ central service cost allocation plans, the COFAR recommended that cognizance is best governed by total Federal awards, in order to avoid a situation where direct funding for one program (for example in housing) may result in a different outcome of cognizance than would otherwise be appropriate. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Section C: Subpart F Audit Requirements (Circulars A–133 and A– 50) This section discusses ideas for changes that would be made to the audit guidance that is contained in Circular A–133 on Audits of States, Local Governments, and Non-Profit Organizations and in Circular A–50 on Audit Follow-up. The following ideas for reform were discussed in the ANPG. 200.501 Audit Requirements OMB received many comments on the appropriateness of the proposed threshold for the single audit requirement at $750,000, some of which recommended the threshold be raised to a higher level, others ambivalent, and some recommended it be kept at its current level of $500,000. The COFAR considered the comments and the implications that raising the threshold to $750,000 would maintain Single Audit oversight over 99.7% of the dollars that are currently subject to the requirement and 87.1% of the entities that are currently subject to the requirement; eliminating the requirement for approximately 5,000 out of the 37,500 entities that currently receive a Single Audit. The COFAR also noted that an increase of $250,000 is in line with the previous adjustment to the threshold. The COFAR considered that raising the threshold would allow Federal agencies to focus their audit resolution resources on the findings that put higher amounts of taxpayer dollars at risk, thus better mitigating overall risks of waste, fraud, and abuse across the government. Further, the COFAR notes that provisions throughout the guidance, including pre-award review of risks, standards for financial and program management, subrecipient monitoring and management, and remedies for noncompliance provide a strengthened level of oversight for non-Federal entities that would fall below the new threshold. The COFAR recommended that the threshold be kept at the proposed level of $750,000. 200.503 Relation to Other Audit Requirements Commenters recommended that language be added to this section to explicitly require Federal agencies or pass-through entities to review the Federal Audit Clearinghouse for existing audits submitted by the entities, and to rely on those to the extent possible prior to commencing an additional audit. The COFAR concurred with the suggestion and recommended the PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 addition in order to reduce duplication by better leveraging existing audit resources prior to initiating new engagements. 200.507 Program-Specific Audits Commenters suggested that rather than requiring auditors to contact inspectors general for program specific audit guides, such guides should be listed in the annual compliance supplement. The COFAR recommended the addition to reduce administrative burden. 200.509 Auditor Selection Comments recommended that peer reviews be added to the factors considered in selecting an auditor. The COFAR recommended the addition to strengthen audit quality and ensure that audit resources are used most effectively. 200.510 Financial Statements Commenters suggested that the schedule of expenditures of Federal awards must include the total Federal awards expended as determined in accordance with section 200.502 Basis for Determining Federal Awards Expended, and also that for clusters of programs, the schedule of expenditures of Federal awards should include the cluster name and also include the Federal awarding agency name with the list of programs within the cluster. The COFAR recommended the addition to facilitate a more efficient and effective audit follow-up process. 200.511 Audit Findings Follow-Up Commenters recommended restoring existing language from OMB Circular A– 133 that lists the valid reasons for considering an audit finding as not warranting further action. The COFAR recommended the addition. 200.512 Report Submission Commenters noted concern with the proposed language in this section that would make audit reports publicly available on the internet. Despite the fact that the non-Federal entity is already required to make the Single Audit report available for public inspection under the Single Audit Act, Indian Tribes were concerned that publishing them would expose sensitive confidential business information that would be harmful to the tribes. The COFAR considered this feedback including feedback from the Department of the Interior, which noted that even if a single audit report for an Indian Tribe were to be requested by a member of the public under the Freedom of Information Act, the confidential E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations business information would be redacted under exemption 4 under the Act. To fully address this problem, the COFAR would need to explore with the audit community whether auditing standards could allow for financial statements that do not include this sensitive information in the first place. Since this solution is beyond the reach of the COFAR at this time, the COFAR recommended adding an option to allow Indian Tribes to opt out of having the Federal Audit Clearinghouse publish their reports. If an Indian tribe were to exercise this option, it would be responsible for providing its audit report to any pass-through entities as appropriate. Commenters recommended additional language to make explicit that the Federal Audit Clearinghouse is the repository of record and authoritative source for single audit reports. Federal agencies, pass-through entities, and others interested should therefore obtain it by accessing the clearinghouse rather than requesting it directly from the nonFederal entity. The COFAR agreed that the proposed addition would likely reduce administrative burden and recommended the addition. Commenters also recommended that the section include language to allow for exceptions to reporting deadlines particularly in cases of emergency. The COFAR considered this, but noted that such language would likely lead to an administratively burdensome process of frequent requests and denials of the extension period. In cases of true emergency, OMB and Federal agencies together often issue pre-emptive extensions of the deadline. The COFAR did not recommend further changes to the language. Further comments noted possible confusion over the deadline for report submission if it falls on a holiday. The COFAR also recommended changes to clarify that if the due date falls on a Saturday, Sunday, or Federal legal holiday, the reporting package is due the next business day. tkelley on DSK3SPTVN1PROD with RULES3 200.513 Responsibilities Commenters recommended that the proposed language on quality control reviews be revised back to current OMB Circular A–133 for reviews that are risk based, which is more in line with agency capacity for reviews. The COFAR concurred with the recommendation. The COFAR further recommended further language to require a governmentwide audit quality project every six years similar to those done in the past to take a meaningful look at audit quality governmentwide VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 and make substantive changes where needed. Commenters noted that the responsibility to coordinate a management decision for cross-cutting findings is one that Federal agencies struggle to accomplish currently. The COFAR considered this and agreed, but recommended the language remain as an articulation of the best policy. The Single Audit resolution pilot project currently under supervision of the COFAR is aimed at addressing some of the difficulties currently found in implementation. Commenters noted that the proposed requirement to submit management decisions to the Federal Audit Clearinghouse is one they concur with, but find that significant work would need to be done to coordinate the management decision process at a governmentwide level before this could feasibly be implemented. The COFAR concurred and struck the proposed language, as well as language that would allow other Federal agencies and passthrough entities to rely on cross-cutting management decisions from Cognizant or Oversight Agencies for Audit. The COFAR further notes that the Single Audit resolution pilot project currently under supervision of the COFAR will hopefully result in lessons learned and best practices that can facilitate the implementation of this policy in the future. Commenters responded positively to new provisions that would strengthen the audit-follow-up process including the appointment of Senior Accountable Officials, implementation of metrics, and encouragement of cooperative audit resolution techniques. These revisions would effectively strengthen the followup process and reduce risk of repeated findings of waste, fraud, and abuse. Some commenters posed questions about the role of the Senior Accountable Official for Audit and how it would align with responsibilities of the Office of Inspectors General. Similar questions were posed about the role of the designated key single audit coordinator. The COFAR considered these and recommended clarifications that the Senior Accountable Official is intended to be a policy official of the awarding agency who can be responsible for overseeing agency management’s role in audit resolution. The COFAR also recommended the key single audit coordinator be renamed the key management single audit liaison, and notes that neither of these roles should in any way impact existing responsibilities of Inspectors General, but rather as the COFAR moves toward greater governmentwide coordination of PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 78607 the audit resolution process, these officials will be accountable for implementing that coordination and ensuring best results. 200.514 Scope of Audit Several commenters indicated sections where they recommended further references to Generally Accepted Government Auditing Standards (GAGAS). The COFAR considered these but noted that language in this section states upfront that Single Audits shall be conducted in accordance with GAGAS, and recommends that further repetition of this language throughout the document be avoided as unnecessary. The COFAR further recommended conforming changes to eliminate duplicative references throughout the guidance. 200.515 Audit Reporting Commenters recommended several minor technical edits throughout this section to align with auditing standards which the COFAR recommended. Commenters also recommended new language to note that nothing in this section should preclude combining of audit reporting required by this section with reporting required by section 200.512 Report Submission. The COFAR considered that such an addition would be useful if future advances in technology allow more consolidated reporting in the future, and recommended the addition. 200.516 Audit Findings Some commenters requested that the proposed threshold for questioned costs of $25,000 be lowered, even below the existing threshold to a level of zero. Other commenters asked that it be raised higher than $25,000, and recommended that the level be set on a sliding scale as a percentage of total dollars awarded per program. The COFAR considered these recommendations, and noted that for purposes of accountability, types of compliance requirements are reviewed with levels of materiality in mind. The questioned cost threshold serves in most cases to dramatically lower the level at which a finding would otherwise be considered material and be reported. The threshold is a valuable tool that provides assurance that questioned costs above it will under no circumstances go unreported regardless of materiality. Based on these considerations, the COFAR recommended that the proposed threshold of $25,000 be accepted. E:\FR\FM\26DER3.SGM 26DER3 78608 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 200.718 Major Program Determination The Government Accountability Office (GAO) commented that step 1 of the major program determination would be more easily understood if presented in a table. The COFAR concurred and recommended the new format for ease of comprehension among readers. Commenters noted the inconsistency of the single audit threshold at $750,000, the Type A/B program threshold at $500,000, and the threshold for an entity to have a Type A program at $1,000,000. Commenters suggested that that the level of the threshold for major programs needed to be raised consistent with the threshold for the Single Audit as a whole at $750,000 to ensure consistent coverage. The COFAR recommended the modification that all three thresholds be the same at $750.000 consistent with the single audit threshold. Commenters also recommended additional language to clarify the criteria under the step 2 determination of Type A programs which are low-risk. The COFAR recommended the addition. tkelley on DSK3SPTVN1PROD with RULES3 200.520 Criteria for a Low-Risk Auditee Members of the audit community and states commented on the criteria for a low-risk auditee that includes whether the financial statements were prepared in accordance with GAAP. Members of the audit community note that GAAP is the preferred method, and states note that state law sometimes provides for other methods of preparation. The COFAR considered this and recommended revised language to allow for exceptions where state law requires otherwise. 200.521 Management Decision Upon review of the structure of the proposed guidance, the COFAR recommended that this section be moved to the end of the document. Commenters suggested that auditees should be required to initiate corrective action as rapidly as possible, and not wait until audit reports are submitted. The COFAR recommended the addition. Commenters also noted that while they supported the ultimate publication of management decisions through the Federal audit clearinghouse, this is not a change that they are prepared to implement immediately. As a result, the COFAR recommended that this be added to the current Single Audit Resolution Pilot currently underway within the COFAR, and that based on the results of the pilot, the COFAR work with Federal agencies to begin implementation of publication of management decisions in 2016. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Appendix XI Compliance Supplement While most commenters were in favor of the proposed reduction of the number of types of compliance requirements in the compliance supplement, many voiced concern about the process that would implement such changes. Comments questioned whether Federal agencies adding back provisions under special tests and provisions would result in increased administrative burden and requested that such fundamental changes be subject to a public notice and comment period. Since the Compliance Supplement is published as part of a separate process, no final changes are made at this time, but the COFAR recommended that any future changes to the compliance supplement be made based on available evidence on past findings and the potential impact of non-compliance for each type of compliance requirement. The COFAR further recommends that further public outreach be conducted prior to making any structural changes to the format of the compliance supplement to mitigate potential risks of an inadvertent increase in administrative burden. List of Subjects in 2 CFR Parts 200, 215, 220, 225, and 230 Accounting, Auditing, Colleges and universities, State and local governments, Grant programs, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements. Norman Dong, Deputy Controller. For the reasons stated in the preamble, under the Authority of the Chief Financial Officer Act of 1990 (31 U.S.C. 503), the Office of Management and Budget amends 2 CFR Chapters I and II as set forth below: Chapter I—Office Of Management and Budget Governmentwide Guidance for Grants and Agreements 1. Remove the subchapter headings for Subchapters A through G from Chapter I. ■ Chapter II—Office of Management and Budget Guidance 2. The heading of chapter II is revised to read as set forth above. ■ 3. Add part 200 to read as follows: ■ PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 PART 200—UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS Subpart A—Acronyms and Definitions Acronyms Sec. 200.0 Acronyms. 200.1 Definitions. 200.2 Acquisition cost. 200.3 Advance payment. 200.4 Allocation. 200.5 Audit finding. 200.6 Auditee. 200.7 Auditor. 200.8 Budget. 200.9 Central service cost allocation plan. 200.10 Catalog of Federal Domestic Assistance number. 200.11 CFDA program title. 200.12 Capital assets. 200.13 Capital expenditures. 200.14 Claim. 200.15 Class of Federal awards. 200.16 Closeout. 200.17 Cluster of programs. 200.18 Cognizant agency for audit. 200.19 Cognizant agency for indirect costs. 200.20 Computing devices. 200.21 Compliance supplement. 200.22 Contract. 200.23 Contractor. 200.24 Cooperative agreement. 200.25 Cooperative audit resolution. 200.26 Corrective action. 200.27 Cost allocation plan. 200.28 Cost objective. 200.29 Cost sharing or matching. 200.30 Cross-cutting audit finding. 200.31 Disallowed costs. 200.32 Data Universal Numbering System (DUNS) number. 200.33 Equipment. 200.34 Expenditures. 200.35 Federal agency. 200.36 Federal Audit Clearinghouse (FAC). 200.37 Federal awarding agency. 200.38 Federal award. 200.39 Federal award date. 200.40 Federal financial assistance. 200.41 Federal interest. 200.42 Federal program. 200.43 Federal share. 200.44 Final cost objective. 200.45 Fixed amount awards. 200.46 Foreign public entity. 200.47 Foreign organization. 200.48 General purpose equipment. 200.49 Generally Accepted Accounting Principles (GAAP). 200.50 Generally Accepted Government Auditing Standards (GAGAS). 200.51 Grant agreement. 200.52 Hospital. 200.53 Improper payment. 200.54 Indian tribe (or ‘‘federally recognized Indian tribe’’). 200.55 Institutions Of Higher Education (IHEs). 200.56 Indirect (facilities & administrative) costs. 200.57 Indirect cost rate proposal. 200.58 Information technology systems. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 200.59 Intangible property. 200.60 Intermediate cost objective. 200.61 Internal controls. 200.62 Internal control over compliance requirements for Federal awards. 200.63 Loan. 200.64 Local government. 200.65 Major program. 200.66 Management decision. 200.67 Micro-purchase. 200.68 Modified Total Direct Cost (MTDC). 200.69 Non-Federal entity. 200.70 Nonprofit organization. 200.71 Obligations. 200.72 Office of Management and Budget (OMB). 200.73 Oversight agency for audit. 200.74 Pass-through entity. 200.75 Participant support costs. 200.76 Performance goal. 200.77 Period of performance. 200.78 Personal property. 200.79 Personally Identifiable Information (PII). 200.80 Program income. 200.81 Property. 200.82 Protected Personally Identifiable Information (Protected PII). 200.83 Project cost. 200.84 Questioned cost. 200.85 Real property. 200.86 Recipient. 200.87 Research and Development (R&D). 200.88 Simplified acquisition threshold. 200.89 Special purpose equipment. 200.90 State. 200.91 Student Financial Aid (SFA). 200.92 Subaward. 200.93 Subrecipient. 200.94 Supplies. 200.95 Termination. 200.96 Third-party in-kind contributions. 200.97 Unliquidated obligations. 200.98 Unobligated balance. 200.99 Voluntary committed cost sharing. tkelley on DSK3SPTVN1PROD with RULES3 Subpart B—General Provisions 200.100 Purpose. 200.101 Applicability. 200.102 Exceptions. 200.103 Authorities. 200.104 Supersession. 200.105 Effect on other issuances. 200.106 Agency implementation. 200.107 OMB responsibilities. 200.108 Inquiries. 200.109 Review date. 200.110 Effective date. 200.111 English language. 200.112 Conflict of interest. 200.113 Mandatory disclosures. Subpart C—Pre-Federal Award Requirements and Contents of Federal Awards 200.200 Purpose. 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts. 200.202 Requirement to provide public notice of Federal financial assistance arograms. 200.203 Notices of funding opportunities. 200.204 Federal awarding agency review of merit of proposals. 200.205 Federal awarding agency review of risk posed by applicants. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 78609 200.206 Standard application requirements. 200.207 Specific conditions. 200.208 Certifications and representations. 200.209 Pre-award costs. 200.210 Information contained in a Federal award. 200.211 Public access to Federal award information. 200.339 Termination. 200.340 Notification of termination requirement. 200.341 Opportunities to object, hearings and appeals. 200.342 Effects of suspension and termination. Subpart D—Post Federal Award Requirements Standards for Financial and Program Management 200.300 Statutory and national policy requirements. 200.301 Performance measurement. 200.302 Financial management. 200.303 Internal controls. 200.304 Bonds. 200.305 Payment. 200.306 Cost sharing or matching. 200.307 Program income. 200.308 Revision of budget and program plans. 200.309 Period of performance. Property Standards 200.310 Insurance coverage. 200.311 Real property. 200.312 Federally-owned and exempt property. 200.313 Equipment. 200.314 Supplies. 200.315 Intangible property. 200.316 Property trust relationship. Procurement Standards 200.317 Procurements by states. 200.318 General procurement standards. 200.319 Competition. 200.320 Methods of procurement to be followed. 200.321 Contracting with small and minority businesses, women’s business enterprises, and labor surplus area firms. 200.322 Procurement of recovered materials. 200.323 Contract cost and price. 200.324 Federal awarding agency or passthrough entity review. 200.325 Bonding requirements. 200.326 Contract provisions. Performance and Financial Monitoring and Reporting 200.327 Financial reporting. 200.328 Monitoring and reporting program performance. 200.329 Reporting on real property. Subrecipient Monitoring and Management 200.330 Subrecipient and contractor determinations. 200.331 Requirements for pass-through entities. 200.332 Fixed amount subawards. Record Retention and Access 200.333 Retention Requirements for Records. 200.334 Requests for transfer of records. 200.335 Methods for collection, transmission and storage of information. 200.336 Access to records. 200.337 Restrictions on public access to records. Remedies for Noncompliance 200.338 Remedies for noncompliance. 200.343 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 Closeout Closeout. Post-Closeout Adjustments and Continuing Responsibilities 200.344 Post-closeout adjustments and continuing responsibilities. Collection of Amounts Due 200.345 Collection of amounts due. Subpart E—Cost Principles General Provisions 200.400 200.401 Policy guide. Application. Basic Considerations 200.402 Composition of costs. 200.403 Factors affecting allowability of costs. 200.404 Reasonable costs. 200.405 Allocable costs. 200.406 Applicable credits. 200.407 Prior written approval (prior approval). 200.408 Limitation on allowance of costs. 200.409 Special considerations. 200.410 Collection of unallowable costs. 200.411 Adjustment of previously negotiated indirect (F&A) cost rates containing unallowable costs. Direct and Indirect (F&A) Costs 200.412 200.413 200.414 200.415 Classification of costs. Direct costs. Indirect (F&A) costs. Required certifications. Special Considerations for States, Local Governments and Indian Tribes 200.416 Cost allocation plans and indirect cost proposals. 200.417 Interagency service. Special Considerations for Institutions of Higher Education 200.418 Costs incurred by states and local governments. 200.419 Cost accounting standards and disclosure statement. General Provisions for Selected Items of Cost 200.420 Considerations for selected items of cost. 200.421 Advertising and public relations. 200.422 Advisory councils. 200.423 Alcoholic beverages. 200.424 Alumni/ae activities. 200.425 Audit services. 200.426 Bad debts. 200.427 Bonding costs. 200.428 Collections of improper payments. 200.429 Commencement and convocation costs. 200.430 Compensation—personal services. 200.431 Compensation—fringe benefits. 200.432 Conferences. 200.433 Contingency provisions. 200.434 Contributions and donations. E:\FR\FM\26DER3.SGM 26DER3 78610 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 200.435 Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements. 200.436 Depreciation. 200.437 Employee health and welfare costs. 200.438 Entertainment costs. 200.439 Equipment and other capital expenditures. 200.440 Exchange rates. 200.441 Fines, penalties, damages and other settlements. 200.442 Fund raising and investment management costs. 200.443 Gains and losses on disposition of depreciable assets. 200.444 General costs of government. 200.445 Goods or services for personal use. 200.446 Idle facilities and idle capacity. 200.447 Insurance and indemnification. 200.448 Intellectual property. 200.449 Interest. 200.450 Lobbying. 200.451 Losses on other awards or contracts. 200.452 Maintenance and repair costs. 200.453 Materials and supplies costs, including costs of computing devices. 200.454 Memberships, subscriptions, and professional activity costs. 200.455 Organization costs. 200.456 Participant support costs. 200.457 Plant and security costs. 200.458 Pre-award costs. 200.459 Professional service costs. 200.460 Proposal costs. 200.461 Publication and printing costs. 200.462 Rearrangement and reconversion costs. 200.463 Recruiting costs. 200.464 Relocation costs of employees. 200.465 Rental costs of real property and equipment. 200.466 Scholarships and student aid costs. 200.467 Selling and marketing costs. 200.468 Specialized service facilities. 200.469 Student activity costs. 200.470 Taxes (including Value Added Tax). 200.471 Termination costs. 200.472 Training and education costs. 200.473 Transportation costs. 200.474 Travel costs. 200.475 Trustees. Subpart F—Audit Requirements General 200.500 Purpose. Audits 200.501 Audit requirements. 200.502 Basis for determining Federal awards expended. 200.503 Relation to other audit requirements. 200.504 Frequency of audits. 200.505 Sanctions. 200.506 Audit costs. 200.507 Program-specific audits. Auditees 200.508 Auditee responsibilities. 200.509 Auditor selection. 200.510 Financial statements. 200.511 Audit findings follow-up. 200.512 Report submission. Federal Agencies 200.513 Responsibilities. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Auditors 200.514 200.515 200.516 200.517 200.518 200.519 200.520 Scope of audit. Audit reporting. Audit findings. Audit documentation. Major program determination. Criteria for Federal program risk. Criteria for a low-risk auditee. Management Decisions 200.521 Management decision. Appendix I to Part 200—Full Text of Notice of Funding Opportunity Appendix II to Part 200—Contract Provisions for Non-Federal Entity Contracts Under Federal Awards Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations Appendix V to Part 200—State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans Appendix VI to Part 200—Public Assistance Cost Allocation Plans Appendix VII to Part 220—States and Local Government and Indian Tribe Indirect Cost Proposals Appendix VIII to Part 200—Nonprofit Organizations Exempted From Subpart E— Cost Principles of Part 200 Appendix IX to Part 200—Hospital Cost Principles Appendix X to Part 200—Data Collection Form (Form SF–SAC) Appendix XI to Part 200—Compliance Supplement Authority: 31 U.S.C. 503 Subpart A—Acronyms and Definitions Acronyms § 200.0 Acronyms. ACRONYM TERM Frm 00022 Fmt 4701 Sfmt 4700 § 200.1 Definitions. These are the definitions for terms used in this Part. Different definitions may be found in Federal statutes or regulations that apply more specifically to particular programs or activities. These definitions could be supplemented by additional instructional information provided in governmentwide standard information collections. § 200.2 CAS Cost Accounting Standards CFDA Catalog of Federal Domestic Assistance CFR Code of Federal Regulations CMIA Cash Management Improvement Act COG Councils Of Governments COSO Committee of Sponsoring Organizations of the Treadway Commission D&B Dun and Bradstreet DUNS Data Universal Numbering System EPA Environmental Protection Agency ERISA Employee Retirement Income Security Act of 1974 (29 U.S.C. 1301– 1461) EUI Energy Usage Index F&A Facilities and Administration FAC Federal Audit Clearinghouse FAIN Federal Award Identification Number PO 00000 FAPIIS Federal Awardee Performance and Integrity Information System FAR Federal Acquisition Regulation FFATA Federal Funding Accountability and Transparency Act of 2006 or Transparency Act—Public Law 109–282, as amended by section 6202(a) of Public Law 110–252 (31 U.S.C. 6101) FICA Federal Insurance Contributions Act FOIA Freedom of Information Act FR Federal Register FTE Full-time equivalent GAAP Generally Accepted Accounting Principles GAGAS Generally Accepted Government Accounting Standards GAO General Accounting Office GOCO Government owned, contractor operated GSA General Services Administration IBS Institutional Base Salary IHE Institutions of Higher Education IRC Internal Revenue Code ISDEAA Indian Self-Determination and Education and Assistance Act MTC Modified Total Cost MTDC Modified Total Direct Cost OMB Office of Management and Budget PII Personally Identifiable Information PRHP Post-retirement Health Plans PTE Pass-through Entity REUI Relative Energy Usage Index SAM System for Award Management SFA Student Financial Aid SNAP Supplemental Nutrition Assistance Program SPOC Single Point of Contact TANF Temporary Assistance for Needy Families TFM Treasury Financial Manual U.S.C. United States Code VAT Value Added Tax Acquisition cost. Acquisition cost means the cost of the asset including the cost to ready the asset for its intended use. Acquisition cost for equipment, for example, means the net invoice price of the equipment, including the cost of any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for the purpose for which it is acquired. Acquisition costs for software includes those development costs capitalized in accordance with generally accepted accounting principles (GAAP). Ancillary charges, such as taxes, duty, protective in transit insurance, freight, and installation may be included in or excluded from the acquisition cost in E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations accordance with the non-Federal entity’s regular accounting practices. § 200.10 Catalog of Federal Domestic Assistance (CFDA) number. §200.3 CFDA number means the number assigned to a Federal program in the CFDA. Advance payment. Advance payment means a payment that a Federal awarding agency or passthrough entity makes by any appropriate payment mechanism, including a predetermined payment schedule, before the non-Federal entity disburses the funds for program purposes. § 200.11 CFDA program title means the title of the program under which the Federal award was funded in the CFDA. § 200.12 § 200.4 Allocation. Allocation means the process of assigning a cost, or a group of costs, to one or more cost objective(s), in reasonable proportion to the benefit provided or other equitable relationship. The process may entail assigning a cost(s) directly to a final cost objective or through one or more intermediate cost objectives. § 200.5 Audit finding. Audit finding means deficiencies which the auditor is required by § 200.516 Audit findings, paragraph (a) to report in the schedule of findings and questioned costs. § 200.6 Auditee. Auditee means any non-Federal entity that expends Federal awards which must be audited under Subpart F— Audit Requirements of this Part. § 200.7 Auditor. Auditor means an auditor who is a public accountant or a Federal, state or local government audit organization, which meets the general standards specified in generally accepted government auditing standards (GAGAS). The term auditor does not include internal auditors of nonprofit organizations. § 200.8 Budget. Budget means the financial plan for the project or program that the Federal awarding agency or pass-through entity approves during the Federal award process or in subsequent amendments to the Federal award. It may include the Federal and non-Federal share or only the Federal share, as determined by the Federal awarding agency or passthrough entity. tkelley on DSK3SPTVN1PROD with RULES3 § 200.9 plan. Central service cost allocation Central service cost allocation plan means the documentation identifying, accumulating, and allocating or developing billing rates based on the allowable costs of services provided by a state, local government, or Indian tribe on a centralized basis to its departments and agencies. The costs of these services may be allocated or billed to users. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 CFDA program title. Capital assets. Capital assets means tangible or intangible assets used in operations having a useful life of more than one year which are capitalized in accordance with GAAP. Capital assets include: (a) Land, buildings (facilities), equipment, and intellectual property (including software) whether acquired by purchase, construction, manufacture, lease-purchase, exchange, or through capital leases; and (b) Additions, improvements, modifications, replacements, rearrangements, reinstallations, renovations or alterations to capital assets that materially increase their value or useful life (not ordinary repairs and maintenance). § 200.13 Capital expenditures. Capital expenditures means expenditures to acquire capital assets or expenditures to make additions, improvements, modifications, replacements, rearrangements, reinstallations, renovations, or alterations to capital assets that materially increase their value or useful life. § 200.14 Claim. Claim means, depending on the context, either: (a) A written demand or written assertion by one of the parties to a Federal award seeking as a matter of right: (1) The payment of money in a sum certain; (2) The adjustment or interpretation of the terms and conditions of the Federal award; or (3) Other relief arising under or relating to a Federal award. (b) A request for payment that is not in dispute when submitted. § 200.15 Class of Federal awards. Class of Federal awards means a group of Federal awards either awarded under a specific program or group of programs or to a specific type of nonFederal entity or group of non-Federal entities to which specific provisions or exceptions may apply. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 § 200.16 78611 Closeout. Closeout means the process by which the Federal awarding agency or passthrough entity determines that all applicable administrative actions and all required work of the Federal award have been completed and takes actions as described in § 200.343 Closeout. § 200.17 Cluster of programs. Cluster of programs means a grouping of closely related programs that share common compliance requirements. The types of clusters of programs are research and development (R&D), student financial aid (SFA), and other clusters. ‘‘Other clusters’’ are as defined by OMB in the compliance supplement or as designated by a state for Federal awards the state provides to its subrecipients that meet the definition of a cluster of programs. When designating an ‘‘other cluster,’’ a state must identify the Federal awards included in the cluster and advise the subrecipients of compliance requirements applicable to the cluster, consistent with § 200.331 Requirements for pass-through entities, paragraph (a). A cluster of programs must be considered as one program for determining major programs, as described in § 200.518 Major program determination, and, with the exception of R&D as described in § 200.501 Audit requirements, paragraph (c), whether a program-specific audit may be elected. § 200.18 Cognizant agency for audit. Cognizant agency for audit means the Federal agency designated to carry out the responsibilities described in § 200.513 Responsibilities, paragraph (a). The cognizant agency for audit is not necessarily the same as the cognizant agency for indirect costs. A list of cognizant agencies for audit may be found at the FAC Web site. § 200.19 costs. Cognizant agency for indirect Cognizant agency for indirect costs means the Federal agency responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost proposals developed under this Part on behalf of all Federal agencies. The cognizant agency for indirect cost is not necessarily the same as the cognizant agency for audit. For assignments of cognizant agencies see the following: (a) For IHEs: Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs), paragraph C.10. (b) For nonprofit organizations: Appendix IV to Part 200—Indirect (F&A) Costs Identification and E:\FR\FM\26DER3.SGM 26DER3 78612 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Assignment, and Rate Determination for Nonprofit Organizations, paragraph C.1. (c) For state and local governments: Appendix V to Part 200—State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans, paragraph F.1. § 200.20 Computing devices. Computing devices means machines used to acquire, store, analyze, process, and publish data and other information electronically, including accessories (or ‘‘peripherals’’) for printing, transmitting and receiving, or storing electronic information. See also §§ 200.94 Supplies and 200.58 Information technology systems. § 200.21 Compliance supplement. Compliance supplement means Appendix XI to Part 200—Compliance Supplement (previously known as the Circular A–133 Compliance Supplement). § 200.22 Contract. Contract means a legal instrument by which a non-Federal entity purchases property or services needed to carry out the project or program under a Federal award. The term as used in this Part does not include a legal instrument, even if the non-Federal entity considers it a contract, when the substance of the transaction meets the definition of a Federal award or subaward (see § 200.92 Subaward). § 200.23 Contractor. Contractor means an entity that receives a contract as defined in § 200.22 Contract. tkelley on DSK3SPTVN1PROD with RULES3 § 200.24 Cooperative agreement. Cooperative agreement means a legal instrument of financial assistance between a Federal awarding agency or pass-through entity and a non-Federal entity that, consistent with 31 U.S.C. 6302–6305: (a) Is used to enter into a relationship the principal purpose of which is to transfer anything of value from the Federal awarding agency or passthrough entity to the non-Federal entity to carry out a public purpose authorized by a law of the United States (see 31 U.S.C. 6101(3)); and not to acquire property or services for the Federal government or pass-through entity’s direct benefit or use; (b) Is distinguished from a grant in that it provides for substantial involvement between the Federal awarding agency or pass-through entity and the non-Federal entity in carrying out the activity contemplated by the Federal award. (c) The term does not include: VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (1) A cooperative research and development agreement as defined in 15 U.S.C. 3710a; or (2) An agreement that provides only: (i) Direct United States Government cash assistance to an individual; (ii) A subsidy; (iii) A loan; (iv) A loan guarantee; or (v) Insurance. § 200.25 Cooperative audit resolution. Cooperative audit resolution means the use of audit follow-up techniques which promote prompt corrective action by improving communication, fostering collaboration, promoting trust, and developing an understanding between the Federal agency and the non-Federal entity. This approach is based upon: (a) A strong commitment by Federal agency and non-Federal entity leadership to program integrity; (b) Federal agencies strengthening partnerships and working cooperatively with non-Federal entities and their auditors; and non-Federal entities and their auditors working cooperatively with Federal agencies; (c) A focus on current conditions and corrective action going forward; (d) Federal agencies offering appropriate relief for past noncompliance when audits show prompt corrective action has occurred; and (e) Federal agency leadership sending a clear message that continued failure to correct conditions identified by audits which are likely to cause improper payments, fraud, waste, or abuse is unacceptable and will result in sanctions. § 200.26 Corrective action. Cost allocation plan. Cost allocation plan means central service cost allocation plan or public assistance cost allocation plan. § 200.28 Cost objective. Cost objective means a program, function, activity, award, organizational subdivision, contract, or work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capital projects, etc. A cost objective may be a major function of the non-Federal entity, a particular PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 § 200.29 Cost sharing or matching. Cost sharing or matching means the portion of project costs not paid by Federal funds (unless otherwise authorized by Federal statute). See also § 200.306 Cost sharing or matching. § 200.30 Cross-cutting audit finding. Cross-cutting audit finding means an audit finding where the same underlying condition or issue affects Federal awards of more than one Federal awarding agency or passthrough entity. § 200.31 Disallowed costs. Disallowed costs means those charges to a Federal award that the Federal awarding agency or pass-through entity determines to be unallowable, in accordance with the applicable Federal statutes, regulations, or the terms and conditions of the Federal award. § 200.32 Data Universal Numbering System (DUNS) number. DUNS number means the nine-digit number established and assigned by Dun and Bradstreet, Inc. (D&B) to uniquely identify entities. A nonFederal entity is required to have a DUNS number in order to apply for, receive, and report on a Federal award. A DUNS number may be obtained from D&B by telephone (currently 866–705– 5711) or the Internet (currently at http:// fedgov.dnb.com/webform). § 200.33 Corrective action means action taken by the auditee that: (a) Corrects identified deficiencies; (b) Produces recommended improvements; or (c) Demonstrates that audit findings are either invalid or do not warrant auditee action. § 200.27 service or project, a Federal award, or an indirect (Facilities & Administrative (F&A)) cost activity, as described in Subpart E—Cost Principles of this Part. See also §§ 200.44 Final cost objective and 200.60 Intermediate cost objective. Equipment. Equipment means tangible personal property (including information technology systems) having a useful life of more than one year and a per-unit acquisition cost which equals or exceeds the lesser of the capitalization level established by the non-Federal entity for financial statement purposes, or $5,000. See also §§ 200.12 Capital assets, 200.20 Computing devices, 200.48 General purpose equipment, 200.58 Information technology systems, 200.89 Special purpose equipment, and 200.94 Supplies. § 200.34 Expenditures. Expenditures means charges made by a non-Federal entity to a project or program for which a Federal award was received. (a) The charges may be reported on a cash or accrual basis, as long as the methodology is disclosed and is consistently applied. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (b) For reports prepared on a cash basis, expenditures are the sum of: (1) Cash disbursements for direct charges for property and services; (2) The amount of indirect expense charged; (3) The value of third-party in-kind contributions applied; and (4) The amount of cash advance payments and payments made to subrecipients. (c) For reports prepared on an accrual basis, expenditures are the sum of: (1) Cash disbursements for direct charges for property and services; (2) The amount of indirect expense incurred; (3) The value of third-party in-kind contributions applied; and (4) The net increase or decrease in the amounts owed by the non-Federal entity for: (i) Goods and other property received; (ii) Services performed by employees, contractors, subrecipients, and other payees; and (iii) Programs for which no current services or performance are required such as annuities, insurance claims, or other benefit payments. § 200.35 Federal agency. Federal agency means an ‘‘agency’’ as defined at 5 U.S.C. 551(1) and further clarified by 5 U.S.C. 552(f). § 200.36 (FAC). Federal Audit Clearinghouse FAC means the clearinghouse designated by OMB as the repository of record where non-Federal entities are required to transmit the reporting packages required by Subpart F—Audit Requirements of this Part. The mailing address of the FAC is Federal Audit Clearinghouse, Bureau of the Census, 1201 E. 10th Street, Jeffersonville, IN 47132 and the web address is: http:// harvester.census.gov/sac/. Any future updates to the location of the FAC may be found at the OMB Web site. § 200.37 Federal awarding agency. Federal awarding agency means the Federal agency that provides a Federal award directly to a non-Federal entity. tkelley on DSK3SPTVN1PROD with RULES3 § 200.38 Federal award. Federal award has the meaning, depending on the context, in either paragraph (a) or (b) of this section: (a)(1) The Federal financial assistance that a non-Federal entity receives directly from a Federal awarding agency or indirectly from a pass-through entity, as described in § 200.101 Applicability; or (2) The cost-reimbursement contract under the Federal Acquisition Regulations that a non-Federal entity receives directly from a Federal VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 awarding agency or indirectly from a pass-through entity, as described in § 200.101 Applicability. (b) The instrument setting forth the terms and conditions. The instrument is the grant agreement, cooperative agreement, other agreement for assistance covered in paragraph (b) of § 200.40 Federal financial assistance, or the cost-reimbursement contract awarded under the Federal Acquisition Regulations. (c) Federal award does not include other contracts that a Federal agency uses to buy goods or services from a contractor or a contract to operate Federal government owned, contractor operated facilities (GOCOs). (d) See also definitions of Federal financial assistance, grant agreement, and cooperative agreement. § 200.39 Federal award date. Federal award date means the date when the Federal award is signed by the authorized official of the Federal awarding agency. § 200.40 Federal financial assistance. (a) For grants and cooperative agreements, Federal financial assistance means assistance that non-Federal entities receive or administer in the form of: (1) Grants; (2) Cooperative agreements; (3) Non-cash contributions or donations of property (including donated surplus property); (4) Direct appropriations; (5) Food commodities; and (6) Other financial assistance (except assistance listed in paragraph (b) of this section). (b) For Subpart F—Audit Requirements of this part, Federal financial assistance also includes assistance that non-Federal entities receive or administer in the form of: (1) Loans; (2) Loan Guarantees; (3) Interest subsidies; and (4) Insurance. (c) Federal financial assistance does not include amounts received as reimbursement for services rendered to individuals as described in § 200.502 Basis for determining Federal awards expended, paragraph (h) and (i) of this Part. § 200.41 Federal interest. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 (a) Federal share of total project costs; and (b) Current fair market value of the property, improvements, or both, to the extent the costs of acquiring or improving the property were included as project costs. § 200.42 Federal program. Federal program means: (a) All Federal awards which are assigned a single number in the CFDA. (b) When no CFDA number is assigned, all Federal awards to nonFederal entities from the same agency made for the same purpose should be combined and considered one program. (c) Notwithstanding paragraphs (a) and (b) of this definition, a cluster of programs. The types of clusters of programs are: (1) Research and development (R&D); (2) Student financial aid (SFA); and (3) ‘‘Other clusters,’’ as described in the definition of Cluster of Programs. § 200.43 Federal share. Federal share means the portion of the total project costs that are paid by Federal funds. § 200.44 Final cost objective. Final cost objective means a cost objective which has allocated to it both direct and indirect costs and, in the non-Federal entity’s accumulation system, is one of the final accumulation points, such as a particular award, internal project, or other direct activity of a non-Federal entity. See also §§ 200.28 Cost objective and 200.60 Intermediate cost objective. § 200.45 Fixed amount awards. Fixed amount awards means a type of grant agreement under which the Federal awarding agency or passthrough entity provides a specific level of support without regard to actual costs incurred under the Federal award. This type of Federal award reduces some of the administrative burden and recordkeeping requirements for both the nonFederal entity and Federal awarding agency or pass-through entity. Accountability is based primarily on performance and results. See §§ 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts, paragraph (b) and 200.332 Fixed amount subawards. § 200.46 Federal interest means, for purposes of § 200.329 Reporting on real property or when used in connection with the acquisition or improvement of real property, equipment, or supplies under a Federal award, the dollar amount that is the product of the: 78613 Foreign public entity. Foreign public entity means: (a) A foreign government or foreign governmental entity; (b) A public international organization, which is an organization entitled to enjoy privileges, exemptions, and immunities as an international E:\FR\FM\26DER3.SGM 26DER3 78614 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations organization under the International Organizations Immunities Act (22 U.S.C. 288–288f); (c) An entity owned (in whole or in part) or controlled by a foreign government; or (d) Any other entity consisting wholly or partially of one or more foreign governments or foreign governmental entities. § 200.47 Foreign organization. Foreign organization means an entity that is: (a) A public or private organization located in a country other than the United States and its territories that are subject to the laws of the country in which it is located, irrespective of the citizenship of project staff or place of performance; (b) A private nongovernmental organization located in a country other than the United States that solicits and receives cash contributions from the general public; (c) A charitable organization located in a country other than the United States that is nonprofit and tax exempt under the laws of its country of domicile and operation, and is not a university, college, accredited degreegranting institution of education, private foundation, hospital, organization engaged exclusively in research or scientific activities, church, synagogue, mosque or other similar entities organized primarily for religious purposes; or (d) An organization located in a country other than the United States not recognized as a Foreign Public Entity. § 200.48 General purpose equipment means equipment which is not limited to research, medical, scientific or other technical activities. Examples include office equipment and furnishings, modular offices, telephone networks, information technology equipment and systems, air conditioning equipment, reproduction and printing equipment, and motor vehicles. See also Equipment and Special Purpose Equipment. tkelley on DSK3SPTVN1PROD with RULES3 § 200.49 Generally Accepted Accounting Principles (GAAP). GAAP has the meaning specified in accounting standards issued by the Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). § 200.50 Generally Accepted Government Auditing Standards (GAGAS). VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 § 200.51 Grant agreement. Grant agreement means a legal instrument of financial assistance between a Federal awarding agency or pass-through entity and a non-Federal entity that, consistent with 31 U.S.C. 6302, 6304: (a) Is used to enter into a relationship the principal purpose of which is to transfer anything of value from the Federal awarding agency or passthrough entity to the non-Federal entity to carry out a public purpose authorized by a law of the United States (see 31 U.S.C. 6101(3)); and not to acquire property or services for the Federal awarding agency or pass-through entity’s direct benefit or use; (b) Is distinguished from a cooperative agreement in that it does not provide for substantial involvement between the Federal awarding agency or passthrough entity and the non-Federal entity in carrying out the activity contemplated by the Federal award. (c) Does not include an agreement that provides only: (1) Direct United States Government cash assistance to an individual; (2) A subsidy; (3) A loan; (4) A loan guarantee; or (5) Insurance. § 200.52 Improper payment. (a) Improper payment means any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements; and (b) Improper payment includes any payment to an ineligible party, any payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received (except for such payments where authorized by law), any payment that does not account for credit for applicable discounts, and any payment where insufficient or lack of documentation prevents a reviewer from discerning whether a payment was proper. § 200.54 Indian tribe (or ‘‘federally recognized Indian tribe’’). Indian tribe means any Indian tribe, band, nation, or other organized group PO 00000 Frm 00026 Fmt 4701 or community, including any Alaska Native village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. Chapter 33), which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians (25 U.S.C. 450b(e)). See annually published Bureau of Indian Affairs list of Indian Entities Recognized and Eligible to Receive Services. § 200.55 (IHEs). Sfmt 4700 Institutions of Higher Education IHE is defined at 20 U.S.C. 1001. § 200.56 Indirect (facilities & administrative (F&A)) costs. Indirect (F&A) costs means those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect (F&A) costs. Indirect (F&A) cost pools should be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived. § 200.57 Hospital. Hospital means a facility licensed as a hospital under the law of any state or a facility operated as a hospital by the United States, a state, or a subdivision of a state. § 200.53 General purpose equipment. GAGAS means generally accepted government auditing standards issued by the Comptroller General of the United States, which are applicable to financial audits. Indirect cost rate proposal. Indirect cost rate proposal means the documentation prepared by a nonFederal entity to substantiate its request for the establishment of an indirect cost rate as described in Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) through Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals of this Part. § 200.58 Information technology systems. Information technology systems means computing devices, ancillary equipment, software, firmware, and similar procedures, services (including support services), and related resources. See also §§ 200.20 Computing devices and 200.33 Equipment. § 200.59 Intangible property. Intangible property means property having no physical existence, such as trademarks, copyrights, patents and patent applications and property, such as loans, notes and other debt instruments, lease agreements, stock and other instruments of property ownership (whether the property is tangible or intangible). E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations § 200.60 Intermediate cost objective. Intermediate cost objective means a cost objective that is used to accumulate indirect costs or service center costs that are subsequently allocated to one or more indirect cost pools or final cost objectives. See also § 200.28 Cost objective and § 200.44 Final cost objective. § 200.61 Internal controls. Internal controls means a process, implemented by a non-Federal entity, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (a) Effectiveness and efficiency of operations; (b) Reliability of reporting for internal and external use; and (c) Compliance with applicable laws and regulations. § 200.62 Internal control over compliance requirements for Federal awards. Internal control over compliance requirements for Federal awards means a process implemented by a non-Federal entity designed to provide reasonable assurance regarding the achievement of the following objectives for Federal awards: (a) Transactions are properly recorded and accounted for, in order to: (1) Permit the preparation of reliable financial statements and Federal reports; (2) Maintain accountability over assets; and (3) Demonstrate compliance with Federal statutes, regulations, and the terms and conditions of the Federal award; (b) Transactions are executed in compliance with: (1) Federal statutes, regulations, and the terms and conditions of the Federal award that could have a direct and material effect on a Federal program; and (2) Any other Federal statutes and regulations that are identified in the Compliance Supplement; and (c) Funds, property, and other assets are safeguarded against loss from unauthorized use or disposition. tkelley on DSK3SPTVN1PROD with RULES3 § 200.63 Loan. Loan means a Federal loan or loan guarantee received or administered by a non-Federal entity, except as used in the definition of § 200.80 Program income. (a) The term ‘‘direct loan’’ means a disbursement of funds by the Federal government to a non-Federal borrower under a contract that requires the repayment of such funds with or without interest. The term includes the purchase of, or participation in, a loan VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 made by another lender and financing arrangements that defer payment for more than 90 days, including the sale of a Federal government asset on credit terms. The term does not include the acquisition of a federally guaranteed loan in satisfaction of default claims or the price support loans of the Commodity Credit Corporation. (b) The term ‘‘direct loan obligation’’ means a binding agreement by a Federal awarding agency to make a direct loan when specified conditions are fulfilled by the borrower. (c) The term ‘‘loan guarantee’’ means any Federal government guarantee, insurance, or other pledge with respect to the payment of all or a part of the principal or interest on any debt obligation of a non-Federal borrower to a non-Federal lender, but does not include the insurance of deposits, shares, or other withdrawable accounts in financial institutions. (d) The term ‘‘loan guarantee commitment’’ means a binding agreement by a Federal awarding agency to make a loan guarantee when specified conditions are fulfilled by the borrower, the lender, or any other party to the guarantee agreement. § 200.64 Local government. Local government means any unit of government within a state, including a: (a) County; (b) Borough; (c) Municipality; (d) City; (e) Town; (f) Township; (g) Parish; (h) Local public authority, including any public housing agency under the United States Housing Act of 1937; (i) Special district; (j) School district; (k) Intrastate district; (l) Council of governments, whether or not incorporated as a nonprofit corporation under state law; and (m) Any other agency or instrumentality of a multi-, regional, or intra-state or local government. § 200.65 Major program. Major program means a Federal program determined by the auditor to be a major program in accordance with § 200.518 Major program determination or a program identified as a major program by a Federal awarding agency or pass-through entity in accordance with § 200.503 Relation to other audit requirements, paragraph (e). § 200.66 Management decision. Management decision means the evaluation by the Federal awarding PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 78615 agency or pass-through entity of the audit findings and corrective action plan and the issuance of a written decision to the auditee as to what corrective action is necessary. § 200.67 Micro-purchase. Micro-purchase means a purchase of supplies or services using simplified acquisition procedures, the aggregate amount of which does not exceed the micro-purchase threshold. Micropurchase procedures comprise a subset of a non-Federal entity’s small purchase procedures. The non-Federal entity uses such procedures in order to expedite the completion of its lowest-dollar small purchase transactions and minimize the associated administrative burden and cost. The micro-purchase threshold is set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 (Definitions). It is $3,000 except as otherwise discussed in Subpart 2.1 of that regulation, but this threshold is periodically adjusted for inflation. § 200.68 Modified Total Direct Cost (MTDC). MTDC means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and subawards and subcontracts up to the first $25,000 of each subaward or subcontract (regardless of the period of performance of the subawards and subcontracts under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward and subcontract in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs. § 200.69 Non-Federal entity. Non-Federal entity means a state, local government, Indian tribe, institution of higher education (IHE), or nonprofit organization that carries out a Federal award as a recipient or subrecipient. § 200.70 Nonprofit organization. Nonprofit organization means any corporation, trust, association, cooperative, or other organization, not including IHEs, that: (a) Is operated primarily for scientific, educational, service, charitable, or similar purposes in the public interest; (b) Is not organized primarily for profit; and E:\FR\FM\26DER3.SGM 26DER3 78616 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (c) Uses net proceeds to maintain, improve, or expand the operations of the organization. § 200.71 Obligations. award. The Federal awarding agency or pass-through entity must include start and end dates of the period of performance in the Federal award (see §§ 200.210 Information contained in a Federal award paragraph (a)(5) and 200.331 Requirements for pass-through entities, paragraph (a)(1)(iv)). When used in connection with a nonFederal entity’s utilization of funds under a Federal award, obligations means orders placed for property and services, contracts and subawards made, and similar transactions during a given period that require payment by the nonFederal entity during the same or a future period. § 200.78 § 200.72 (OMB). § 200.79 Personally Identifiable Information (PII). Office of Management and Budget OMB means the Executive Office of the President, Office of Management and Budget. § 200.73 Oversight agency for audit. Oversight agency for audit means the Federal awarding agency that provides the predominant amount of funding directly to a non-Federal entity not assigned a cognizant agency for audit. When there is no direct funding, the Federal awarding agency which is the predominant source of pass-through funding must assume the oversight responsibilities. The duties of the oversight agency for audit and the process for any reassignments are described in § 200.513 Responsibilities, paragraph (b). § 200.74 Pass-through entity. Pass-through entity means a nonFederal entity that provides a subaward to a subrecipient to carry out part of a Federal program. § 200.75 Participant support costs. Participant support costs means direct costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with conferences, or training projects. tkelley on DSK3SPTVN1PROD with RULES3 § 200.76 Performance goal. Performance goal means a target level of performance expressed as a tangible, measurable objective, against which actual achievement can be compared, including a goal expressed as a quantitative standard, value, or rate. In some instances (e.g., discretionary research awards), this may be limited to the requirement to submit technical performance reports (to be evaluated in accordance with agency policy). § 200.77 Period of performance. Period of performance means the time during which the non-Federal entity may incur new obligations to carry out the work authorized under the Federal VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 discounts, and interest earned on any of them. See also § 200.407 Prior written approval (prior approval). See also 35 U.S.C. 200–212 ‘‘Disposition of Rights in Educational Awards’’ applies to inventions made under Federal awards. § 200.81 Personal property. Personal property means property other than real property. It may be tangible, having physical existence, or intangible. PII means information that can be used to distinguish or trace an individual’s identity, either alone or when combined with other personal or identifying information that is linked or linkable to a specific individual. Some information that is considered to be PII is available in public sources such as telephone books, public Web sites, and university listings. This type of information is considered to be Public PII and includes, for example, first and last name, address, work telephone number, email address, home telephone number, and general educational credentials. The definition of PII is not anchored to any single category of information or technology. Rather, it requires a case-by-case assessment of the specific risk that an individual can be identified. Non-PII can become PII whenever additional information is made publicly available, in any medium and from any source, that, when combined with other available information, could be used to identify an individual. § 200.80 Program income. Program income means gross income earned by the non-Federal entity that is directly generated by a supported activity or earned as a result of the Federal award during the period of performance. (See § 200.77 Period of performance.) Program income includes but is not limited to income from fees for services performed, the use or rental or real or personal property acquired under Federal awards, the sale of commodities or items fabricated under a Federal award, license fees and royalties on patents and copyrights, and principal and interest on loans made with Federal award funds. Interest earned on advances of Federal funds is not program income. Except as otherwise provided in Federal statutes, regulations, or the terms and conditions of the Federal award, program income does not include rebates, credits, PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 Property. Property means real property or personal property. § 200.82 Protected Personally Identifiable Information (Protected PII). Protected PII means an individual’s first name or first initial and last name in combination with any one or more of types of information, including, but not limited to, social security number, passport number, credit card numbers, clearances, bank numbers, biometrics, date and place of birth, mother’s maiden name, criminal, medical and financial records, educational transcripts. This does not include PII that is required by law to be disclosed. (See also § 200.79 Personally Identifiable Information (PII)). § 200.83 Project cost. Project cost means total allowable costs incurred under a Federal award and all required cost sharing and voluntary committed cost sharing, including third-party contributions. § 200.84 Questioned cost. Questioned cost means a cost that is questioned by the auditor because of an audit finding: (a) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (b) Where the costs, at the time of the audit, are not supported by adequate documentation; or (c) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. § 200.85 Real property. Real property means land, including land improvements, structures and appurtenances thereto, but excludes moveable machinery and equipment. § 200.86 Recipient. Recipient means a non-Federal entity that receives a Federal award directly from a Federal awarding agency to carry out an activity under a Federal program. The term recipient does not include subrecipients. See also § 200.69 NonFederal entity. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations § 200.87 (R&D). Research and Development R&D means all research activities, both basic and applied, and all development activities that are performed by non-Federal entities. The term research also includes activities involving the training of individuals in research techniques where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function. ‘‘Research’’ is defined as a systematic study directed toward fuller scientific knowledge or understanding of the subject studied. ‘‘Development’’ is the systematic use of knowledge and understanding gained from research directed toward the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes. § 200.88 Simplified acquisition threshold. Simplified acquisition threshold means the dollar amount below which a non-Federal entity may purchase property or services using small purchase methods. Non-Federal entities adopt small purchase procedures in order to expedite the purchase of items costing less than the simplified acquisition threshold. The simplified acquisition threshold is set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 (Definitions) and in accordance with 41 U.S.C. 1908. As of the publication of this Part, the simplified acquisition threshold is $150,000, but this threshold is periodically adjusted for inflation. (Also see definition of § 200.67 Micropurchase.) § 200.89 Special purpose equipment. Special purpose equipment means equipment which is used only for research, medical, scientific, or other technical activities. Examples of special purpose equipment include microscopes, x-ray machines, surgical instruments, and spectrometers. See also §§ 200.33 Equipment and 200.48 General purpose equipment. tkelley on DSK3SPTVN1PROD with RULES3 § 200.90 State. State means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any agency or instrumentality thereof exclusive of local governments. § 200.91 Student Financial Aid (SFA). SFA means Federal awards under those programs of general student VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 assistance, such as those authorized by Title IV of the Higher Education Act of 1965, as amended, (20 U.S.C. 1070– 1099d), which are administered by the U.S. Department of Education, and similar programs provided by other Federal agencies. It does not include Federal awards under programs that provide fellowships or similar Federal awards to students on a competitive basis, or for specified studies or research. § 200.92 Subaward. Subaward means an award provided by a pass-through entity to a subrecipient for the subrecipient to carry out part of a Federal award received by the pass-through entity. It does not include payments to a contractor or payments to an individual that is a beneficiary of a Federal program. A subaward may be provided through any form of legal agreement, including an agreement that the passthrough entity considers a contract. § 200.93 Subrecipient. Subrecipient means a non-Federal entity that receives a subaward from a pass-through entity to carry out part of a Federal program; but does not include an individual that is a beneficiary of such program. A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency. § 200.94 Supplies. Supplies means all tangible personal property other than those described in § 200.33 Equipment. A computing device is a supply if the acquisition cost is less than the lesser of the capitalization level established by the non-Federal entity for financial statement purposes or $5,000, regardless of the length of its useful life. See also §§ 200.20 Computing devices and 200.33 Equipment. § 200.95 Termination. Termination means the ending of a Federal award, in whole or in part at any time prior to the planned end of period of performance. § 200.96 Third-party in-kind contributions. Third-party in-kind contributions means the value of non-cash contributions (i.e., property or services) that— (a) Benefit a federally assisted project or program; and (b) Are contributed by non-Federal third parties, without charge, to a nonFederal entity under a Federal award. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 § 200.97 78617 Unliquidated obligations. Unliquidated obligations means, for financial reports prepared on a cash basis, obligations incurred by the nonFederal entity that have not been paid (liquidated). For reports prepared on an accrual expenditure basis, these are obligations incurred by the non-Federal entity for which an expenditure has not been recorded. § 200.98 Unobligated balance. Unobligated balance means the amount of funds under a Federal award that the non-Federal entity has not obligated. The amount is computed by subtracting the cumulative amount of the non-Federal entity’s unliquidated obligations and expenditures of funds under the Federal award from the cumulative amount of the funds that the Federal awarding agency or passthrough entity authorized the nonFederal entity to obligate. § 200.99 Voluntary committed cost sharing. Voluntary committed cost sharing means cost sharing specifically pledged on a voluntary basis in the proposal’s budget or the Federal award on the part of the non-Federal entity and that becomes a binding requirement of Federal award. Subpart B—General Provisions § 200.100 Purpose. (a)(1) This Part establishes uniform administrative requirements, cost principles, and audit requirements for Federal awards to non-Federal entities, as described in § 200.101 Applicability. Federal awarding agencies must not impose additional or inconsistent requirements, except as provided in §§ 200.102 Exceptions and 200.210 Information contained in a Federal award, or unless specifically required by Federal statute, regulation, or Executive Order. (2) This Part provides the basis for a systematic and periodic collection and uniform submission by Federal agencies of information on all Federal financial assistance programs to the Office of Management and Budget (OMB). It also establishes Federal policies related to the delivery of this information to the public, including through the use of electronic media. It prescribes the manner in which General Services Administration (GSA), OMB, and Federal agencies that administer Federal financial assistance programs are to carry out their statutory responsibilities under the Federal Program Information Act (31 U.S.C. 6101–6106). (b) Administrative requirements. Subparts B through D of this Part set E:\FR\FM\26DER3.SGM 26DER3 78618 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Requirements of this Part is issued pursuant to the Single Audit Act Amendments of 1996, (31 U.S.C. 7501– 7507). It sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of non-Federal entities expending Federal awards. These provisions also provide the policies and procedures for Federal awarding agencies and pass-through entities when using the results of these audits. (e) For OMB guidance to Federal awarding agencies on Challenges and Prizes, please see M–10–11 Guidance on the Use of Challenges and Prizes to Promote Open Government, issued March 8, 2010, or its successor. The following portions of the Part: (a) General applicability to Federal agencies. The requirements established in this Part apply to Federal agencies that make Federal awards to nonFederal entities. These requirements are applicable to all costs related to Federal awards. (b)(1) Applicability to different types of Federal awards. The following table describes what portions of this Part apply to which types of Federal awards. The terms and conditions of Federal awards (including this Part) flow down to subawards to subrecipients unless a particular section of this Part or the terms and conditions of the Federal award specifically indicate otherwise. This means that non-Federal entities must comply with requirements in this Part regardless of whether the nonFederal entity is a recipient or subrecipient of a Federal award. Passthrough entities must comply with the requirements described in Subpart D— Post Federal Award Requirements of this Part, §§ 200.330 Subrecipient and contractor determinations through 200.332 Fixed amount Subawards, but not any requirements in this Part directed towards Federal awarding agencies unless the requirements of this Part or the terms and conditions of the Federal award indicate otherwise. Are applicable to the following types of Federal Awards (except as noted in paragraphs (d) and (e) of this section): forth the uniform administrative requirements for grant and cooperative agreements, including the requirements for Federal awarding agency management of Federal grant programs before the Federal award has been made, and the requirements Federal awarding agencies may impose on nonFederal entities in the Federal award. (c) Cost Principles. Subpart E—Cost Principles of this Part establishes principles for determining the allowable costs incurred by non-Federal entities under Federal awards. The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal government participation in the financing of a particular program or project. The principles are designed to provide that Federal awards bear their fair share of cost recognized under these principles except where restricted or prohibited by statute. (d) Single Audit Requirements and Audit Follow-up. Subpart F—Audit Are NOT applicable to the following types of Federal Awards: § 200.101 Applicability. This table must be read along with the other provisions of this section Authority: 31 U.S.C. 503 Subpart A—Acronyms and Definitions ........ Subpart B—General Provisions, except for §§ § 200.111 English language, § 200.112 Conflict of interest, § 200.113. Mandatory disclosures § 200.111 English language, § 200.112 Conflict of interest, and § 200.113. Mandatory disclosures —All. —All. —Grant agreements and cooperative agreements. —Grant agreements and cooperative agreements. Subpart D—Post Federal Award Requirements, Subrecipient Monitoring and Management. Subpart E—Cost Principles ................................. tkelley on DSK3SPTVN1PROD with RULES3 Subparts C–D, except for Subrecipient Monitoring and Management. —Agreements for: loans, loan guarantees, interest subsidies, and insurance. —Cost-reimbursement contracts awarded under the Federal Acquisition Regulations and cost-reimbursement subcontracts under these contracts. —Agreements for: loans, loan guarantees, interest subsidies, and insurance. —Cost-reimbursement contracts awarded under the Federal Acquisition Regulations and cost-reimbursement subcontracts under these contracts. —All. Subpart F—Audit Requirements ......................... VerDate Mar<15>2010 20:48 Dec 24, 2013 Jkt 232001 —Grant agreements and cooperative agreements, except those providing food commodities. —Cost-reimbursement contracts awarded under the Federal Acquisition Regulations and cost-reimbursement subcontracts under these contracts in accordance with the FAR. —All. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 —Grant agreements and cooperative agreements providing food commodities. —Fixed amount awards. —Agreements for: loans, loan guarantees, interest subsidies, insurance. —Federal awards to hospitals (see Appendix IX to Part 200—Hospital Cost Principles). E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (2) Federal award of costreimbursement contract under the FAR to a non-Federal entity. When a nonFederal entity is awarded a costreimbursement contract, only Subpart D—Post Federal Award Requirements of this Part, §§ 200.330 Subrecipient and contractor determinations through 200.332 Fixed amount Subawards (in addition to any FAR related requirements for subaward monitoring), Subpart E—Cost Principles of this Part and Subpart F—Audit Requirements of this Part are incorporated by reference into the contract. However, when the Cost Accounting Standards (CAS) are applicable to the contract, they take precedence over the requirements of this Part except for Subpart F—Audit Requirements of this Part when they are in conflict. In addition, costs that are made unallowable under 10 U.S.C. 2324(e) and 41 U.S.C. 4304(a) as described in the FAR subpart 31.2 and subpart 31.603 are always unallowable. For requirements other than those covered in Subpart D—Post Federal Award Requirements of this Part, §§ 200.330 Subrecipient and contractor determinations through 200.332 Fixed amount Subawards, Subpart E—Cost Principles of this Part and Subpart F— Audit Requirements of this Part, the terms of the contract and the FAR apply. (3) With the exception of Subpart F— Audit Requirements of this Part, which is required by the Single Audit Act, in any circumstances where the provisions of Federal statutes or regulations differ from the provisions of this Part, the provision of the Federal statutes or regulations govern. This includes, for agreements with Indian tribes, the provisions of the Indian SelfDetermination and Education and Assistance Act (ISDEAA), as amended, 25 U.S.C 450–458ddd–2. (c) Federal agencies may apply subparts A through E of this Part to forprofit entities, foreign public entities, or foreign organizations, except where the Federal awarding agency determines that the application these subparts would be inconsistent with the international obligations of the United States or the statute or regulations of a foreign government. (d) Except for § 200.202 Requirement to provide public notice of Federal financial assistance programs and §§ 200.330 Subrecipient and contractor VerDate Mar<15>2010 20:29 Dec 24, 2013 Jkt 232001 determinations through 200.332 Fixed amount Subawards of Subpart D—Post Federal Award Requirements of this Part, the requirements in Subpart C— Pre-Federal Award Requirements and Contents of Federal Awards, Subpart D—Post Federal Award Requirements of this Part, and Subpart E—Cost Principles of this Part do not apply to the following programs: (1) The block grant awards authorized by the Omnibus Budget Reconciliation Act of 1981 (including Community Services; Preventive Health and Health Services; Alcohol, Drug Abuse, and Mental Health Services; Maternal and Child Health Services; Social Services; Low-Income Home Energy Assistance; States’ Program of Community Development Block Grant Awards for Small Cities; and Elementary and Secondary Education other than programs administered by the Secretary of Education under title V, subtitle D, chapter 2, section 583—the Secretary’s discretionary award program) and both the Alcohol and Drug Abuse Treatment and Rehabilitation Block Grant Award (42 U.S.C. 300x–21 to 300x–35 and 42 U.S.C. 300x–51 to 300x64) and the Mental Health Service for the Homeless Block Grant Award (42 U.S.C. 300x to 300x–9) under the Public Health Services Act. (2) Federal awards to local education agencies under 20 U.S.C. 7702–7703b, (portions of the Impact Aid program); (3) Payments under the Department of Veterans Affairs’ State Home Per Diem Program (38 U.S.C. 1741); and (4) Federal awards authorized under the Child Care and Development Block Grant Act of 1990, as amended: (i) Child Care and Development Block Grant (42 U.S.C. 9858) (ii) Child Care Mandatory and Matching Funds of the Child Care and Development Fund (42 U.S.C. 9858) (e) Except for § 200.202 Requirement to provide public notice of Federal financial assistance programs the guidance in Subpart C—Pre-Federal Award Requirements and Contents of Federal Awards of this Part does not apply to the following programs: (1) Entitlement Federal awards to carry out the following programs of the Social Security Act: (i) Temporary Assistance to Needy Families (title IV–A of the Social Security Act, 42 U.S.C. 601–619); PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 78619 (ii) Child Support Enforcement and Establishment of Paternity (title IV–D of the Social Security Act, 42 U.S.C. 651– 669b); (iii) Foster Care and Adoption Assistance (title IV–E of the Act, 42 U.S.C. 670–679c); (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and XVI– AABD of the Act, as amended); and (v) Medical Assistance (Medicaid) (title XIX of the Act, 42 U.S.C. 1396– 1396w–5) not including the State Medicaid Fraud Control program authorized by section 1903(a)(6)(B) of the Social Security Act (42 U.S.C. 1396b(a)(6)(B)). (2) A Federal award for an experimental, pilot, or demonstration project that is also supported by a Federal award listed in paragraph (e)(1) of this section; (3) Federal awards under subsection 412(e) of the Immigration and Nationality Act and subsection 501(a) of the Refugee Education Assistance Act of 1980 (Pub. L. 96–422, 94 Stat. 1809), for cash assistance, medical assistance, and supplemental security income benefits to refugees and entrants and the administrative costs of providing the assistance and benefits (8 U.S.C. 1522(e)); (4) Entitlement awards under the following programs of The National School Lunch Act: (i) National School Lunch Program (section 4 of the Act, 42 U.S.C. 1753), (ii) Commodity Assistance (section 6 of the Act, 42 U.S.C. 1755), (iii) Special Meal Assistance (section 11 of the Act, 42 U.S.C. 1759a), (iv) Summer Food Service Program for Children (section 13 of the Act, 42 U.S.C. 1761), and (v) Child and Adult Care Food Program (section 17 of the Act, 42 U.S.C. 1766). (5) Entitlement awards under the following programs of The Child Nutrition Act of 1966: (i) Special Milk Program (section 3 of the Act, 42 U.S.C. 1772), (ii) School Breakfast Program (section 4 of the Act, 42 U.S.C. 1773), and (iii) State Administrative Expenses (section 7 of the Act, 42 U.S.C. section 1776). E:\FR\FM\26DER3.SGM 26DER3 78620 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (6) Entitlement awards for State Administrative Expenses under The Food and Nutrition Act of 2008 (section 16 of the Act, 7 U.S.C. 2025). (7) Non-discretionary Federal awards under the following non-entitlement programs: (i) Special Supplemental Nutrition Program for Women, Infants and Children (section 17 of the Child Nutrition Act of 1966) 42 U.S.C. section 1786; (ii) The Emergency Food Assistance Programs (Emergency Food Assistance Act of 1983) 7 U.S.C. section 7501 note; and (iii) Commodity Supplemental Food Program (section 5 of the Agriculture and Consumer Protection Act of 1973) 7 U.S.C. section 612c note. tkelley on DSK3SPTVN1PROD with RULES3 § 200.102 Exceptions. (a) With the exception of Subpart F— Audit Requirements of this Part, OMB may allow exceptions for classes of Federal awards or non-Federal entities subject to the requirements of this Part when exceptions are not prohibited by statute. However, in the interest of maximum uniformity, exceptions from the requirements of this Part will be permitted only in unusual circumstances. Exceptions for classes of Federal awards or non-Federal entities will be published on the OMB Web site at www.whitehouse.gov/omb. (b) Exceptions on a case-by-case basis for individual non-Federal entities may be authorized by the Federal awarding agency or cognizant agency for indirect costs except where otherwise required by law or where OMB or other approval is expressly required by this Part. No case-by-case exceptions may be granted to the provisions of Subpart F—Audit Requirements of this Part. (c) The Federal awarding agency may apply more restrictive requirements to a class of Federal awards or non-Federal entities when approved by OMB, required by Federal statutes or regulations except for the requirements in Subpart F—Audit Requirements of this Part. A Federal awarding agency may apply less restrictive requirements when making fixed amount awards as defined in Subpart A—Acronyms and Definitions of this Part, except for those requirements imposed by statute or in Subpart F—Audit Requirements of this Part. (d) On a case-by-case basis, OMB will approve new strategies for Federal awards when proposed by the Federal awarding agency in accordance with OMB guidance (such as M–13–17) to develop additional evidence relevant to addressing important policy challenges or to promote cost-effectiveness in and VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 across Federal programs. Proposals may draw on the innovative program designs discussed in M–13–17 to expand or improve the use of effective practices in delivering Federal financial assistance while also encouraging innovation in service delivery. Proposals submitted to OMB in accordance with M–13–17 may include requests to waive requirements other than those in Subpart F—Audit Requirements of this Part. § 200.103 Authorities. This Part is issued under the following authorities. (a) Subpart B—General Provisions of this Part through Subpart D—Post Federal Award Requirements of this Part are authorized under 31 U.S.C. 503 (the Chief Financial Officers Act, Functions of the Deputy Director for Management), 31 U.S.C. 1111 (Improving Economy and Efficiency of the United States Government), 41 U.S.C. 1101–1131 (the Office of Federal Procurement Policy Act), Reorganization Plan No. 2 of 1970, and Executive Order 11541 (‘‘Prescribing the Duties of the Office of Management and Budget and the Domestic Policy Council in the Executive Office of the President’’), the Single Audit Act Amendments of 1996, (31 U.S.C. 7501– 7507), as well as The Federal Program Information Act (Public Law 95–220 and Public Law 98–169, as amended, codified at 31 U.S.C. 6101–6106). (b) Subpart E—Cost Principles of this Part is authorized under the Budget and Accounting Act of 1921, as amended; the Budget and Accounting Procedures Act of 1950, as amended (31 U.S.C. 1101–1125); the Chief Financial Officers Act of 1990 (31 U.S.C. 503–504); Reorganization Plan No. 2 of 1970; and Executive Order No. 11541, ‘‘Prescribing the Duties of the Office of Management and Budget and the Domestic Policy Council in the Executive Office of the President.’’ (c) Subpart F—Audit Requirements of this Part is authorized under the Single Audit Act Amendments of 1996, (31 U.S.C. 7501–7507). § 200.104 Supersession. As described in § 200.110 Effective/ applicability date, this Part supersedes the following OMB guidance documents and regulations under Title 2 of the Code of Federal Regulations: (a) A–21, ‘‘Cost Principles for Educational Institutions’’ (2 CFR Part 220); (b) A–87, ‘‘Cost Principles for State, Local and Indian Tribal Governments’’ (2 CFR Part 225) and also Federal Register notice 51 FR 552 (January 6, 1986); PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 (c) A–89, ‘‘Federal Domestic Assistance Program Information’’; (d) A–102, ‘‘Grant Awards and Cooperative Agreements with State and Local Governments’’; (e) A–110, ‘‘Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations’’ (codified at 2 CFR 215); (f) A–122, ‘‘Cost Principles for NonProfit Organizations’’ (2 CFR Part 230); (g) A–133, ‘‘Audits of States, Local Governments and Non-Profit Organizations,’’; and (h) Those sections of A–50 related to audits performed under Subpart F— Audit Requirements of this Part. § 200.105 Effect on other issuances. For Federal awards subject to this Part, all administrative requirements, program manuals, handbooks and other non-regulatory materials that are inconsistent with the requirements of this Part must be superseded upon implementation of this Part by the Federal agency, except to the extent they are required by statute or authorized in accordance with the provisions in § 200.102 Exceptions. § 200.106 Agency implementation. The specific requirements and responsibilities of Federal agencies and non-Federal entities are set forth in this Part. Federal agencies making Federal awards to non-Federal entities must implement the language in the Subpart C—Pre-Federal Award Requirements and Contents of Federal Awards of this Part through Subpart F—Audit Requirements of this Part in codified regulations unless different provisions are required by Federal statute or are approved by OMB. § 200.107 OMB responsibilities. OMB will review Federal agency regulations and implementation of this Part, and will provide interpretations of policy requirements and assistance to ensure effective and efficient implementation. Any exceptions will be subject to approval by OMB. Exceptions will only be made in particular cases where adequate justification is presented. § 200.108 Inquiries. Inquiries concerning this Part may be directed to the Office of Federal Financial Management Office of Management and Budget, in Washington, DC. Non-Federal entities’ inquiries should be addressed to the Federal awarding agency, cognizant agency for indirect costs, cognizant or E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations § 200.113 oversight agency for audit, or passthrough entity as appropriate. § 200.109 Review date. OMB will review this Part at least every five years after December 26, 2013. § 200.110 Effective/applicability date. (a) The standards set forth in this Part which affect administration of Federal awards issued by Federal agencies become effective once implemented by Federal agencies or when any future amendment to this Part becomes final. Federal agencies must implement the policies and procedures applicable to Federal awards by promulgating a regulation to be effective by December 26, 2014 unless different provisions are required by statute or approved by OMB. (b) The standards set forth in Subpart F—Audit Requirements of this Part and any other standards which apply directly to Federal agencies will be effective December 26, 2013 and will apply to audits of fiscal years beginning on or after December 26, 2014. § 200.111 English language. (a) All Federal financial assistance announcements and Federal award information must be in the English language. Applications must be submitted in the English language and must be in the terms of U.S. dollars. If the Federal awarding agency receives applications in another currency, the Federal awarding agency will evaluate the application by converting the foreign currency to United States currency using the date specified for receipt of the application. (b) Non-Federal entities may translate the Federal award and other documents into another language. In the event of inconsistency between any terms and conditions of the Federal award and any translation into another language, the English language meaning will control. Where a significant portion of the nonFederal entity’s employees who are working on the Federal award are not fluent in English, the non-Federal entity must provide the Federal award in English and the language(s) with which employees are more familiar. tkelley on DSK3SPTVN1PROD with RULES3 § 200.112 Conflict of interest. The Federal awarding agency must establish conflict of interest policies for Federal awards. The non-Federal entity must disclose in writing any potential conflict of interest to the Federal awarding agency or pass-through entity in accordance with applicable Federal awarding agency policy. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Mandatory disclosures. The non-Federal entity or applicant for a Federal award must disclose, in a timely manner, in writing to the Federal awarding agency or pass-through entity all violations of Federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the Federal award. Failure to make required disclosures can result in any of the remedies described in § 200.338 Remedies for noncompliance, including suspension or debarment. (See also 2 CFR Part 180 and 31 U.S.C. 3321). Subpart C—Pre-Federal Award Requirements and Contents of Federal Awards § 200.200 Purpose. (a) Sections 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts through 200.208 Certifications and representations. Prescribe instructions and other pre-award matters to be used in the announcement and application process. (b) Use of §§ 200.203 Notices of funding opportunities, 200.204 Federal awarding agency review of merit of proposals, 200.205 Federal awarding agency review of risk posed by applicants, and 200.207 Specific conditions, is required only for competitive Federal awards, but may also be used by the Federal awarding agency for non-competitive awards where appropriate or where required by Federal statute. § 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts. (a) The Federal awarding agency or pass-through entity must decide on the appropriate instrument for the Federal award (i.e., grant agreement, cooperative agreement, or contract) in accordance with the Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301–08). (b) Fixed Amount Awards. In addition to the options described in paragraph (a) of this section, Federal awarding agencies, or pass-through entities as permitted in § 200.332 Fixed amount subawards, may use fixed amount awards (see § 200.45 Fixed amount awards) to which the following conditions apply: (1) Payments are based on meeting specific requirements of the Federal award. Accountability is based on performance and results. The Federal award amount is negotiated using the cost principles (or other pricing information) as a guide. Except in the case of termination before completion of the Federal award, there is no PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 78621 governmental review of the actual costs incurred by the non-Federal entity in performance of the award. The Federal awarding agency or pass-through entity may use fixed amount awards if the project scope is specific and if adequate cost, historical, or unit pricing data is available to establish a fixed amount award with assurance that the nonFederal entity will realize no increment above actual cost. Some of the ways in which the Federal award may be paid include, but are not limited to: (i) In several partial payments, the amount of each agreed upon in advance, and the ‘‘milestone’’ or event triggering the payment also agreed upon in advance, and set forth in the Federal award; (ii) On a unit price basis, for a defined unit or units, at a defined price or prices, agreed to in advance of performance of the Federal award and set forth in the Federal award; or, (iii) In one payment at Federal award completion. (2) A fixed amount award cannot be used in programs which require mandatory cost sharing or match. (3) The non-Federal entity must certify in writing to the Federal awarding agency or pass-through entity at the end of the Federal award that the project or activity was completed or the level of effort was expended. If the required level of activity or effort was not carried out, the amount of the Federal award must be adjusted. (4) Periodic reports may be established for each Federal award. (5) Changes in principal investigator, project leader, project partner, or scope of effort must receive the prior written approval of the Federal awarding agency or pass-through entity. § 200.202 Requirement to provide public notice of Federal financial assistance programs. (a) The Federal awarding agency must notify the public of Federal programs in the Catalog of Federal Domestic Assistance (CFDA), maintained by the General Services Administration (GSA). (1) The CFDA, or any OMBdesignated replacement, is the single, authoritative, governmentwide comprehensive source of Federal financial assistance program information produced by the executive branch of the Federal government. (2) The information that the Federal awarding agency must submit to GSA for approval by OMB is listed in paragraph (b) of this section. GSA must prescribe the format for the submission. (3) The Federal awarding agency may not award Federal financial assistance without assigning it to a program that E:\FR\FM\26DER3.SGM 26DER3 78622 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations has been included in the CFDA as required in this section unless there are exigent circumstances requiring otherwise, such as timing requirements imposed by statute. (b) For each program that awards discretionary Federal awards, nondiscretionary Federal awards, loans, insurance, or any other type of Federal financial assistance, the Federal awarding agency must submit the following information to GSA: (1) Program Description, Purpose, Goals and Measurement. A brief summary of the statutory or regulatory requirements of the program and its intended outcome. Where appropriate, the Program Description, Purpose, Goals, and Measurement should align with the strategic goals and objectives within the Federal awarding agency’s performance plan and should support the Federal awarding agency’s performance measurement, management, and reporting as required by Part 6 of OMB Circular A–11; (2) Identification of whether the program makes Federal awards on a discretionary basis or the Federal awards are prescribed by Federal statute, such as in the case of formula grants. (3) Projected total amount of funds available for the program. Estimates based on previous year funding are acceptable if current appropriations are not available at the time of the submission; (4) Anticipated Source of Available Funds: The statutory authority for funding the program and, to the extent possible, agency, sub-agency, or, if known, the specific program unit that will issue the Federal awards, and associated funding identifier (e.g., Treasury Account Symbol(s)); (5) General Eligibility Requirements: The statutory, regulatory or other eligibility factors or considerations that determine the applicant’s qualification for Federal awards under the program (e.g., type of non-Federal entity); and (6) Applicability of Single Audit Requirements as required by Subpart F—Audit Requirements of this Part. tkelley on DSK3SPTVN1PROD with RULES3 § 200.203 Notices of funding opportunities. For competitive grants and cooperative agreements, the Federal awarding agency must announce specific funding opportunities by providing the following information in a public notice: (a) Summary Information in Notices of Funding Opportunities. The Federal awarding agency must display the following information posted on the OMB-designated governmentwide Web VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 site for finding and applying for Federal financial assistance, in a location preceding the full text of the announcement: (1) Federal Awarding Agency Name; (2) Funding Opportunity Title; (3) Announcement Type (whether the funding opportunity is the initial announcement of this funding opportunity or a modification of a previously announced opportunity); (4) Funding Opportunity Number (required, if applicable). If the Federal awarding agency has assigned or will assign a number to the funding opportunity announcement, this number must be provided; (5) Catalog of Federal Financial Assistance (CFDA) Number(s); (6) Key Dates. Key dates include due dates for applications or Executive Order 12372 submissions, as well as for any letters of intent or pre-applications. For any announcement issued before a program’s application materials are available, key dates also include the date on which those materials will be released; and any other additional information, as deemed applicable by the relevant Federal awarding agency. (b) The Federal awarding agency must generally make all funding opportunities available for application for at least 60 calendar days. The Federal awarding agency may make a determination to have a less than 60 calendar day availability period but no funding opportunity should be available for less than 30 calendar days unless exigent circumstances require as determined by the Federal awarding agency head or delegate. (c) Full Text of Funding Opportunities. The Federal awarding agency must include the following information in the full text of each funding opportunity. For specific instructions on the content required in this section, refer to Appendix I to Part 200—Full Text of Notice of Funding Opportunity to this Part. (1) Full programmatic description of the funding opportunity. (2) Federal award information, including sufficient information to help an applicant make an informed decision about whether to submit an application. (See also § 200.414 Indirect (F&A) costs, paragraph (b)). (3) Specific eligibility information, including any factors or priorities that affect an applicant’s or its application’s eligibility for selection. (4) Application Preparation and Submission Information, including the applicable submission dates and time. (5) Application Review Information including the criteria and process to be used to evaluate applications. See also PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 § 200.205 Federal awarding agency review of risk posed by applicants. See also 2 CFR Part 27. (6) Federal Award Administration Information. See also § 200.210 Information contained in a Federal award. § 200.204 Federal awarding agency review of merit of proposals. For competitive grants or cooperative agreements, unless prohibited by Federal statute, the Federal awarding agency must design and execute a merit review process for applications. This process must be described or incorporated by reference in the applicable funding opportunity (see Appendix I to this Part, Full text of the Funding Opportunity.) See also § 200.203 Notices of funding opportunities. § 200.205 Federal awarding agency review of risk posed by applicants. (a) Prior to making a Federal award, the Federal awarding agency is required by 31 U.S.C. 3321 and 41 U.S.C. 2313 note to review information available through any OMB-designated repositories of governmentwide eligibility qualification or financial integrity information, such as Federal Awardee Performance and Integrity Information System (FAPIIS), Dun and Bradstreet, and ‘‘Do Not Pay’’. See also suspension and debarment requirements at 2 CFR Part 180 as well as individual Federal agency suspension and debarment regulations in title 2 of the Code of Federal Regulations. (b) In addition, for competitive grants or cooperative agreements, the Federal awarding agency must have in place a framework for evaluating the risks posed by applicants before they receive Federal awards. This evaluation may incorporate results of the evaluation of the applicant’s eligibility or the quality of its application. If the Federal awarding agency determines that a Federal award will be made, special conditions that correspond to the degree of risk assessed may be applied to the Federal award. Criteria to be evaluated must be described in the announcement of funding opportunity described in § 200.203 Notices of funding opportunities. (c) In evaluating risks posed by applicants, the Federal awarding agency may use a risk-based approach and may consider any items such as the following: (1) Financial stability; (2) Quality of management systems and ability to meet the management standards prescribed in this Part; (3) History of performance. The applicant’s record in managing Federal E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations awards, if it is a prior recipient of Federal awards, including timeliness of compliance with applicable reporting requirements, conformance to the terms and conditions of previous Federal awards, and if applicable, the extent to which any previously awarded amounts will be expended prior to future awards; (4) Reports and findings from audits performed under Subpart F—Audit Requirements of this Part or the reports and findings of any other available audits; and (5) The applicant’s ability to effectively implement statutory, regulatory, or other requirements imposed on non-Federal entities. (d) In addition to this review, the Federal awarding agency must comply with the guidelines on governmentwide suspension and debarment in 2 CFR Part 180, and must require non-Federal entities to comply with these provisions. These provisions restrict Federal awards, subawards and contracts with certain parties that are debarred, suspended or otherwise excluded from or ineligible for participation in Federal programs or activities. § 200.206 Standard application requirements. (a) Paperwork clearances. The Federal awarding agency may only use application information collections approved by OMB under the Paperwork Reduction Act of 1995 and OMB’s implementing regulations in 5 CFR Part 1320, Controlling Paperwork Burdens on the Public. Consistent with these requirements, OMB will authorize additional information collections only on a limited basis. (b) If applicable, the Federal awarding agency may inform applicants and recipients that they do not need to provide certain information otherwise required by the relevant information collection. tkelley on DSK3SPTVN1PROD with RULES3 § 200.207 Specific conditions. 18:36 Dec 24, 2013 § 200.208 Certifications and representations. Unless prohibited by Federal statutes or regulations, each Federal awarding agency or pass-through entity is authorized to require the non-Federal entity to submit certifications and representations required by Federal statutes, or regulations on an annual basis. Submission may be required more frequently if the non-Federal entity fails to meet a requirement of a Federal award. § 200.209 (a) Based on the criteria set forth in § 200.205 Federal awarding agency review of risk posed by applicants or when an applicant or recipient has a history of failure to comply with the general or specific terms and conditions of a Federal award, or failure to meet expected performance goals as described in § 200.210 Information contained in a Federal award, or is not otherwise responsible, the Federal awarding agency or pass-through entity may impose additional specific award conditions as needed under the procedure specified in paragraph (b) of this section. These additional Federal VerDate Mar<15>2010 award conditions may include items such as the following: (1) Requiring payments as reimbursements rather than advance payments; (2) Withholding authority to proceed to the next phase until receipt of evidence of acceptable performance within a given period of performance; (3) Requiring additional, more detailed financial reports; (4) Requiring additional project monitoring; (5) Requiring the non-Federal entity to obtain technical or management assistance; or (6) Establishing additional prior approvals. (b) The Federal awarding agency or pass-through entity must notify the applicant or non-Federal entity as to: (1) The nature of the additional requirements; (2) The reason why the additional requirements are being imposed; (3) The nature of the action needed to remove the additional requirement, if applicable; (4) The time allowed for completing the actions if applicable, and (5) The method for requesting reconsideration of the additional requirements imposed. (c) Any special conditions must be promptly removed once the conditions that prompted them have been corrected. Jkt 232001 Pre-award costs. For requirements on costs incurred by the applicant prior to the start date of the period of performance of the Federal award, see § 200.458 Pre-award costs. § 200.210 Information contained in a Federal award. A Federal award must include the following information: (a) General Federal Award Information. The Federal awarding agency must include the following general Federal award information in each Federal award: (1) Recipient name (which must match registered name in DUNS); PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 78623 (2) Recipient’s DUNS number (see § 200.32 Data Universal Numbering System (DUNS) number); (3) Unique Federal Award Identification Number (FAIN); (4) Federal Award Date (see § 200.39 Federal award date); (5) Period of Performance Start and End Date; (6) Amount of Federal Funds Obligated by this action; (7) Total Amount of Federal Funds Obligated; (8) Total Amount of the Federal Award; (9) Budget Approved by the Federal Awarding Agency; (10) Total Approved Cost Sharing or Matching, where applicable; (11) Federal award project description, (to comply with statutory requirements (e.g., FFATA)); (12) Name of Federal awarding agency and contact information for awarding official, (13) CFDA Number and Name; (14) Identification of whether the award is R&D; and (15) Indirect cost rate for the Federal award (including if the de minimis rate is charged per § 200.414 Indirect (F&A) costs). (b) General Terms and Conditions (1) Federal awarding agencies must incorporate the following general terms and conditions either in the Federal award or by reference, as applicable: (i) Administrative requirements implemented by the Federal awarding agency as specified in this Part. (ii) National policy requirements. These include statutory, executive order, other Presidential directive, or regulatory requirements that apply by specific reference and are not programspecific. See § 200.300 Statutory and national policy requirements. (2) The Federal award must include wording to incorporate, by reference, the applicable set of general terms and conditions. The reference must be to the Web site at which the Federal awarding agency maintains the general terms and conditions. (3) If a non-Federal entity requests a copy of the full text of the general terms and conditions, the Federal awarding agency must provide it. (4) Wherever the general terms and conditions are publicly available, the Federal awarding agency must maintain an archive of previous versions of the general terms and conditions, with effective dates, for use by the nonFederal entity, auditors, or others. (c) Federal Awarding Agency, Program, or Federal Award Specific Terms and Conditions. The Federal awarding agency may include with each E:\FR\FM\26DER3.SGM 26DER3 78624 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Federal award any terms and conditions necessary to communicate requirements that are in addition to the requirements outlined in the Federal awarding agency’s general terms and conditions. Whenever practicable, these specific terms and conditions also should be shared on a public Web site and in notices of funding opportunities (as outlined in § 200.203 Notices of funding opportunities) in addition to being included in a Federal award. See also § 200.206 Standard application requirements. (d) Federal Award Performance Goals. The Federal awarding agency must include in the Federal award an indication of the timing and scope of expected performance by the nonFederal entity as related to the outcomes intended to be achieved by the program. In some instances (e.g., discretionary research awards), this may be limited to the requirement to submit technical performance reports (to be evaluated in accordance with Federal awarding agency policy). Where appropriate, the Federal award may include specific performance goals, indicators, milestones, or expected outcomes (such as outputs, or services performed or public impacts of any of these) with an expected timeline for accomplishment. Reporting requirements must be clearly articulated such that, where appropriate, performance during the execution of the Federal award has a standard against which non-Federal entity performance can be measured. The Federal awarding agency may include program-specific requirements, as applicable. These requirements should be aligned with agency strategic goals, strategic objectives or performance goals that are relevant to the program. See also OMB Circular A– 11, Preparation, Submission and Execution of the Budget Part 6 for definitions of strategic objectives and performance goals. (e) Any other information required by the Federal awarding agency. tkelley on DSK3SPTVN1PROD with RULES3 § 200.211 Public access to Federal award information. (a) In accordance with statutory requirements for Federal spending transparency (e.g., FFATA), except as noted in this section, for applicable Federal awards the Federal awarding agency must announce all Federal awards publicly and publish the required information on a publicly available OMB-designated governmentwide Web site (at time of publication, www.USAspending.gov). (b) Nothing in this section may be construed as requiring the publication of information otherwise exempt under VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 the Freedom of Information Act (5 U.S.C 552), or controlled unclassified information pursuant to Executive Order 13556. Subpart D—Post Federal Award Requirements Standards for Financial and Program Management § 200.300 Statutory and national policy requirements. (a) The Federal awarding agency must manage and administer the Federal award in a manner so as to ensure that Federal funding is expended and associated programs are implemented in full accordance with U.S. statutory and public policy requirements: including, but not limited to, those protecting public welfare, the environment, and prohibiting discrimination. The Federal awarding agency must communicate to the non-Federal entity all relevant public policy requirements, including those in general appropriations provisions, and incorporate them either directly or by reference in the terms and conditions of the Federal award. (b) The non-Federal entity is responsible for complying with all requirements of the Federal award. For all Federal awards, this includes the provisions of FFATA, which includes requirements on executive compensation, and also requirements implementing the Act for the nonFederal entity at 2 CFR Part 25 Financial Assistance Use of Universal Identifier and Central Contractor Registration and 2 CFR Part 170 Reporting Subaward and Executive Compensation Information. See also statutory requirements for whistleblower protections at 10 U.S.C. 2409, 41 U.S.C. 4712, and 10 U.S.C. 2324, 41 U.S.C. 4304 and 4310. § 200.301 Performance measurement. The Federal awarding agency must require the recipient to use OMBapproved governmentwide standard information collections when providing financial and performance information. As appropriate and in accordance with above mentioned information collections, the Federal awarding agency must require the recipient to relate financial data to performance accomplishments of the Federal award. Also, in accordance with above mentioned governmentwide standard information collections, and when applicable, recipients must also provide cost information to demonstrate cost effective practices (e.g., through unit cost data). The recipient’s performance should be measured in a way that will help the Federal awarding agency and other non-Federal entities to improve program outcomes, share lessons PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 learned, and spread the adoption of promising practices. The Federal awarding agency should provide recipients with clear performance goals, indicators, and milestones as described in § 200.210 Information contained in a Federal award. Performance reporting frequency and content should be established to not only allow the Federal awarding agency to understand the recipient progress but also to facilitate identification of promising practices among recipients and build the evidence upon which the Federal awarding agency’s program and performance decisions are made. § 200.302 Financial management. (a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other nonFederal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also § 200.450 Lobbying. (b) The financial management system of each non-Federal entity must provide for the following (see also §§ 200.333 Retention requirements for records, 200.334 Requests for transfer of records, 200.335 Methods for collection, transmission and storage of information, 200.336 Access to records, and 200.337 Restrictions on public access to records): (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the CFDA title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.327 Financial reporting and 200.328 Monitoring and reporting program performance. If a Federal awarding agency requires reporting on an accrual basis from a recipient that maintains its E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations records on other than an accrual basis, the recipient must not be required to establish an accrual accounting system. This recipient may develop accrual data for its reports on the basis of an analysis of the documentation on hand. Similarly, a pass-through entity must not require a subrecipient to establish an accrual accounting system and must allow the subrecipient to develop accrual data for its reports on the basis of an analysis of the documentation on hand. (3) Records that identify adequately the source and application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. (4) Effective control over, and accountability for, all funds, property, and other assets. The non-Federal entity must adequately safeguard all assets and assure that they are used solely for authorized purposes. See § 200.303 Internal controls. (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305 Payment. (7) Written procedures for determining the allowability of costs in accordance with Subpart E—Cost Principles of this Part and the terms and conditions of the Federal award. tkelley on DSK3SPTVN1PROD with RULES3 § 200.303 The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in ‘‘Standards for Internal Control in the Federal Government’’ issued by the Comptroller General of the United States and the ‘‘Internal Control Integrated Framework’’, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). (b) Comply with Federal statutes, regulations, and the terms and conditions of the Federal awards. (c) Evaluate and monitor the nonFederal entity’s compliance with statute, regulations and the terms and conditions of Federal awards. (d) Take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings. 18:36 Dec 24, 2013 § 200.304 Jkt 232001 Bonds. The Federal awarding agency may include a provision on bonding, insurance, or both in the following circumstances: (a) Where the Federal government guarantees or insures the repayment of money borrowed by the recipient, the Federal awarding agency, at its discretion, may require adequate bonding and insurance if the bonding and insurance requirements of the nonFederal entity are not deemed adequate to protect the interest of the Federal government. (b) The Federal awarding agency may require adequate fidelity bond coverage where the non-Federal entity lacks sufficient coverage to protect the Federal government’s interest. (c) Where bonds are required in the situations described above, the bonds must be obtained from companies holding certificates of authority as acceptable sureties, as prescribed in 31 CFR Part 223, ‘‘Surety Companies Doing Business with the United States.’’ § 200.305 Internal controls. VerDate Mar<15>2010 (e) Take reasonable measures to safeguard protected personally identifiable information and other information the Federal awarding agency or pass-through entity designates as sensitive or the non-Federal entity considers sensitive consistent with applicable Federal, state and local laws regarding privacy and obligations of confidentiality. Payment. (a) For states, payments are governed by Treasury-State CMIA agreements and default procedures codified at 31 CFR Part 205 ‘‘Rules and Procedures for Efficient Federal-State Funds Transfers’’ and TFM 4A–2000 Overall Disbursing Rules for All Federal Agencies. (b) For non-Federal entities other than states, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means. See also § 200.302 Financial management paragraph (f). Except as noted elsewhere in this Part, Federal agencies must require recipients to use only OMBapproved standard governmentwide information collection requests to request payment. (1) The non-Federal entity must be paid in advance, provided it maintains or demonstrates the willingness to maintain both written procedures that minimize the time elapsing between the PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 78625 transfer of funds and disbursement by the non-Federal entity, and financial management systems that meet the standards for fund control and accountability as established in this Part. Advance payments to a nonFederal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs and the proportionate share of any allowable indirect costs. The non-Federal entity must make timely payment to contractors in accordance with the contract provisions. (2) Whenever possible, advance payments must be consolidated to cover anticipated cash needs for all Federal awards made by the Federal awarding agency to the recipient. (i) Advance payment mechanisms include, but are not limited to, Treasury check and electronic funds transfer and should comply with applicable guidance in 31 CFR Part 208. (ii) Non-Federal entities must be authorized to submit requests for advance payments and reimbursements at least monthly when electronic fund transfers are not used, and as often as they like when electronic transfers are used, in accordance with the provisions of the Electronic Fund Transfer Act (15 U.S.C. 1601). (3) Reimbursement is the preferred method when the requirements in paragraph (b) cannot be met, when the Federal awarding agency sets a specific condition per § 200.207 Specific conditions, or when the non-Federal entity requests payment by reimbursement. This method may be used on any Federal award for construction, or if the major portion of the construction project is accomplished through private market financing or Federal loans, and the Federal award constitutes a minor portion of the project. When the reimbursement method is used, the Federal awarding agency or pass-through entity must make payment within 30 calendar days after receipt of the billing, unless the Federal awarding agency or passthrough entity reasonably believes the request to be improper. (4) If the non-Federal entity cannot meet the criteria for advance payments and the Federal awarding agency or pass-through entity has determined that reimbursement is not feasible because the non-Federal entity lacks sufficient E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78626 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations working capital, the Federal awarding agency or pass-through entity may provide cash on a working capital advance basis. Under this procedure, the Federal awarding agency or passthrough entity must advance cash payments to the non-Federal entity to cover its estimated disbursement needs for an initial period generally geared to the non-Federal entity’s disbursing cycle. Thereafter, the Federal awarding agency or pass-through entity must reimburse the non-Federal entity for its actual cash disbursements. Use of the working capital advance method of payment requires that the pass-through entity provide timely advance payments to any subrecipients in order to meet the subrecipient’s actual cash disbursements. The working capital advance method of payment must not be used by the pass-through entity if the reason for using this method is the unwillingness or inability of the passthrough entity to provide timely advance payments to the subrecipient to meet the subrecipient’s actual cash disbursements. (5) Use of resources before requesting cash advance payments. To the extent available, the non-Federal entity must disburse funds available from program income (including repayments to a revolving fund), rebates, refunds, contract settlements, audit recoveries, and interest earned on such funds before requesting additional cash payments. (6) Unless otherwise required by Federal statutes, payments for allowable costs by non-Federal entities must not be withheld at any time during the period of performance unless the conditions of §§ 200.207 Specific conditions, Subpart D—Post Federal Award Requirements of this Part, 200.338 Remedies for Noncompliance, or the following apply: (i) The non-Federal entity has failed to comply with the project objectives, Federal statutes, regulations, or the terms and conditions of the Federal award. (ii) The non-Federal entity is delinquent in a debt to the United States as defined in OMB Guidance A–129, ‘‘Policies for Federal Credit Programs and Non-Tax Receivables.’’ Under such conditions, the Federal awarding agency or pass-through entity may, upon reasonable notice, inform the nonFederal entity that payments must not be made for obligations incurred after a specified date until the conditions are corrected or the indebtedness to the Federal government is liquidated. (iii) A payment withheld for failure to comply with Federal award conditions, but without suspension of the Federal VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 award, must be released to the nonFederal entity upon subsequent compliance. When a Federal award is suspended, payment adjustments will be made in accordance with § 200.342 Effects of suspension and termination. (iv) A payment must not be made to a non-Federal entity for amounts that are withheld by the non-Federal entity from payment to contractors to assure satisfactory completion of work. A payment must be made when the nonFederal entity actually disburses the withheld funds to the contractors or to escrow accounts established to assure satisfactory completion of work. (7) Standards governing the use of banks and other institutions as depositories of advance payments under Federal awards are as follows. (i) The Federal awarding agency and pass-through entity must not require separate depository accounts for funds provided to a non-Federal entity or establish any eligibility requirements for depositories for funds provided to the non-Federal entity. However, the nonFederal entity must be able to account for the receipt, obligation and expenditure of funds. (ii) Advance payments of Federal funds must be deposited and maintained in insured accounts whenever possible. (8) The non-Federal entity must maintain advance payments of Federal awards in interest-bearing accounts, unless the following apply. (i) The non-Federal entity receives less than $120,000 in Federal awards per year. (ii) The best reasonably available interest-bearing account would not be expected to earn interest in excess of $500 per year on Federal cash balances. (iii) The depository would require an average or minimum balance so high that it would not be feasible within the expected Federal and non-Federal cash resources. (iv) A foreign government or banking system prohibits or precludes interest bearing accounts. (9) Interest earned on Federal advance payments deposited in interest-bearing accounts must be remitted annually to the Department of Health and Human Services, Payment Management System, Rockville, MD 20852. Interest amounts up to $500 per year may be retained by the non-Federal entity for administrative expense. § 200.306 Cost sharing or matching. (a) Under Federal research proposals, voluntary committed cost sharing is not expected. It cannot be used as a factor during the merit review of applications or proposals, but may be considered if PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 it is both in accordance with Federal awarding agency regulations and specified in a notice of funding opportunity. Criteria for considering voluntary committed cost sharing and any other program policy factors that may be used to determine who may receive a Federal award must be explicitly described in the notice of funding opportunity. Furthermore, only mandatory cost sharing or cost sharing specifically committed in the project budget must be included in the organized research base for computing the indirect (F&A) cost rate or reflected in any allocation of indirect costs. See also §§ 200.414 Indirect (F&A) costs, 200.203 Notices of funding opportunities, and Appendix I to Part 200—Full Text of Notice of Funding Opportunity. (b) For all Federal awards, any shared costs or matching funds and all contributions, including cash and third party in-kind contributions, must be accepted as part of the non-Federal entity’s cost sharing or matching when such contributions meet all of the following criteria: (1) Are verifiable from the nonFederal entity’s records; (2) Are not included as contributions for any other Federal award; (3) Are necessary and reasonable for accomplishment of project or program objectives; (4) Are allowable under Subpart E— Cost Principles of this Part; (5) Are not paid by the Federal government under another Federal award, except where the Federal statute authorizing a program specifically provides that Federal funds made available for such program can be applied to matching or cost sharing requirements of other Federal programs; (6) Are provided for in the approved budget when required by the Federal awarding agency; and (7) Conform to other provisions of this Part, as applicable. (c) Unrecovered indirect costs, including indirect costs on cost sharing or matching may be included as part of cost sharing or matching only with the prior approval of the Federal awarding agency. Unrecovered indirect cost means the difference between the amount charged to the Federal award and the amount which could have been to the Federal award under the nonFederal entity’s approved negotiated indirect cost rate. (d) Values for non-Federal entity contributions of services and property must be established in accordance with § 200.434 Contributions and donations. If a Federal awarding agency authorizes the non-Federal entity to donate E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations buildings or land for construction/ facilities acquisition projects or longterm use, the value of the donated property for cost sharing or matching must be the lesser of paragraphs (d)(1) or (2) of this section. (1) The value of the remaining life of the property recorded in the nonFederal entity’s accounting records at the time of donation. (2) The current fair market value. However, when there is sufficient justification, the Federal awarding agency may approve the use of the current fair market value of the donated property, even if it exceeds the value described in (1) above at the time of donation. (e) Volunteer services furnished by third-party professional and technical personnel, consultants, and other skilled and unskilled labor may be counted as cost sharing or matching if the service is an integral and necessary part of an approved project or program. Rates for third-party volunteer services must be consistent with those paid for similar work by the non-Federal entity. In those instances in which the required skills are not found in the non-Federal entity, rates must be consistent with those paid for similar work in the labor market in which the non-Federal entity competes for the kind of services involved. In either case, paid fringe benefits that are reasonable, necessary, allocable, and otherwise allowable may be included in the valuation. (f) When a third-party organization furnishes the services of an employee, these services must be valued at the employee’s regular rate of pay plus an amount of fringe benefits that is reasonable, necessary, allocable, and otherwise allowable, and indirect costs at either the third-party organization’s approved federally negotiated indirect cost rate or, a rate in accordance with § 200.414 Indirect (F&A) costs, paragraph (d), provided these services employ the same skill(s) for which the employee is normally paid. Where donated services are treated as indirect costs, indirect cost rates will separate the value of the donated services so that reimbursement for the donated services will not be made. (g) Donated property from third parties may include such items as equipment, office supplies, laboratory supplies, or workshop and classroom supplies. Value assessed to donated property included in the cost sharing or matching share must not exceed the fair market value of the property at the time of the donation. (h) The method used for determining cost sharing or matching for third-partydonated equipment, buildings and land VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 for which title passes to the non-Federal entity may differ according to the purpose of the Federal award, if paragraph (h)(1) or (2) of this section applies. (1) If the purpose of the Federal award is to assist the non-Federal entity in the acquisition of equipment, buildings or land, the aggregate value of the donated property may be claimed as cost sharing or matching. (2) If the purpose of the Federal award is to support activities that require the use of equipment, buildings or land, normally only depreciation charges for equipment and buildings may be made. However, the fair market value of equipment or other capital assets and fair rental charges for land may be allowed, provided that the Federal awarding agency has approved the charges. See also § 200.420 Considerations for selected items of cost. (i) The value of donated property must be determined in accordance with the usual accounting policies of the non-Federal entity, with the following qualifications: (1) The value of donated land and buildings must not exceed its fair market value at the time of donation to the non-Federal entity as established by an independent appraiser (e.g., certified real property appraiser or General Services Administration representative) and certified by a responsible official of the non-Federal entity as required by the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended, (42 U.S.C. 4601– 4655) (Uniform Act) except as provided in the implementing regulations at 49 CFR Part 24. (2) The value of donated equipment must not exceed the fair market value of equipment of the same age and condition at the time of donation. (3) The value of donated space must not exceed the fair rental value of comparable space as established by an independent appraisal of comparable space and facilities in a privately-owned building in the same locality. (4) The value of loaned equipment must not exceed its fair rental value. (j) For third-party in-kind contributions, the fair market value of goods and services must be documented and to the extent feasible supported by the same methods used internally by the non-Federal entity. § 200.307 Program income. (a) General. Non-Federal entities are encouraged to earn income to defray program costs where appropriate. (b) Cost of generating program income. If authorized by Federal PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 78627 regulations or the Federal award, costs incidental to the generation of program income may be deducted from gross income to determine program income, provided these costs have not been charged to the Federal award. (c) Governmental revenues. Taxes, special assessments, levies, fines, and other such revenues raised by a nonFederal entity are not program income unless the revenues are specifically identified in the Federal award or Federal awarding agency regulations as program income. (d) Property. Proceeds from the sale of real property or equipment are not program income; such proceeds will be handled in accordance with the requirements of Subpart D—Post Federal Award Requirements of this Part, Property Standards §§ 200.311 Real property and 200.313 Equipment, or as specifically identified in Federal statutes, regulations, or the terms and conditions of the Federal award. (e) Use of program income. If the Federal awarding agency does not specify in its regulations or the terms and conditions of the Federal award, or give prior approval for how program income is to be used, paragraph (e)(1) of this section must apply. For Federal awards made to IHEs and nonprofit research institutions, if the Federal awarding agency does not specify in its regulations or the terms and conditions of the Federal award how program income is to be used, paragraph (e)(2) of this section must apply. In specifying alternatives to paragraphs (e)(1) and (2) of this section, the Federal awarding agency may distinguish between income earned by the recipient and income earned by subrecipients and between the sources, kinds, or amounts of income. When the Federal awarding agency authorizes the approaches in paragraphs (e)(2) and (3) of this section, program income in excess of any amounts specified must also be deducted from expenditures. (1) Deduction. Ordinarily program income must be deducted from total allowable costs to determine the net allowable costs. Program income must be used for current costs unless the Federal awarding agency authorizes otherwise. Program income that the non-Federal entity did not anticipate at the time of the Federal award must be used to reduce the Federal award and non-Federal entity contributions rather than to increase the funds committed to the project. (2) Addition. With prior approval of the Federal awarding agency, program income may be added to the Federal award by the Federal agency and the non-Federal entity. The program income E:\FR\FM\26DER3.SGM 26DER3 78628 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations must be used for the purposes and under the conditions of the Federal award. (3) Cost sharing or matching. With prior approval of the Federal awarding agency, program income may be used to meet the cost sharing or matching requirement of the Federal award. The amount of the Federal award remains the same. (f) Income after the period of performance. There are no Federal requirements governing the disposition of income earned after the end of the period of performance for the Federal award, unless the Federal awarding agency regulations or the terms and conditions of the Federal award provide otherwise. The Federal awarding agency may negotiate agreements with recipients regarding appropriate uses of income earned after the period of performance as part of the grant closeout process. See also § 200.343 Closeout. tkelley on DSK3SPTVN1PROD with RULES3 § 200.308 plans. Revision of budget and program (a) The approved budget for the Federal award summarizes the financial aspects of the project or program as approved during the Federal award process. It may include either the Federal and non-Federal share (see § 200.43 Federal share) or only the Federal share, depending upon Federal awarding agency requirements. It must be related to performance for program evaluation purposes whenever appropriate. (b) Recipients are required to report deviations from budget or project scope or objective, and request prior approvals from Federal awarding agencies for budget and program plan revisions, in accordance with this section. (c) For non-construction Federal awards, recipients must request prior approvals from Federal awarding agencies for one or more of the following program or budget-related reasons: (1) Change in the scope or the objective of the project or program (even if there is no associated budget revision requiring prior written approval). (2) Change in a key person specified in the application or the Federal award. (3) The disengagement from the project for more than three months, or a 25 percent reduction in time devoted to the project, by the approved project director or principal investigator. (4) The inclusion, unless waived by the Federal awarding agency, of costs that require prior approval in accordance with Subpart E—Cost Principles of this Part or 45 CFR Part 74 Appendix E, ‘‘Principles for VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Determining Costs Applicable to Research and Development under Awards and Contracts with Hospitals,’’ or 48 CFR Part 31, ‘‘Contract Cost Principles and Procedures,’’ as applicable. (5) The transfer of funds budgeted for participant support costs as defined in § 200.75 Participant support costs to other categories of expense. (6) Unless described in the application and funded in the approved Federal awards, the subawarding, transferring or contracting out of any work under a Federal award. This provision does not apply to the acquisition of supplies, material, equipment or general support services. (7) Changes in the amount of approved cost-sharing or matching provided by the non-Federal entity. No other prior approval requirements for specific items may be imposed unless a deviation has been approved by OMB. See also §§ 200.102 Exceptions and 200.407 Prior written approval (prior approval). (d) Except for requirements listed in paragraph (c)(1) of this section, the Federal awarding agency are authorized, at their option, to waive prior written approvals required by paragraph (c) this section. Such waivers may include authorizing recipients to do any one or more of the following: (1) Incur project costs 90 calendar days before the Federal awarding agency makes the Federal award. Expenses more than 90 calendar days pre-award require prior approval of the Federal awarding agency. All costs incurred before the Federal awarding agency makes the Federal award are at the recipient’s risk (i.e., the Federal awarding agency is under no obligation to reimburse such costs if for any reason the recipient does not receive a Federal award or if the Federal award is less than anticipated and inadequate to cover such costs). See also § 200.458 Pre-award costs. (2) Initiate a one-time extension of the period of performance by up to 12 months unless one or more of the conditions outlined in paragraphs (d)(2)(i) through (iii) of this section apply. For one-time extensions, the recipient must notify the Federal awarding agency in writing with the supporting reasons and revised period of performance at least 10 calendar days before the end of the period of performance specified in the Federal award. This one-time extension may not be exercised merely for the purpose of using unobligated balances. Extensions require explicit prior Federal awarding agency approval when: PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 (i) The terms and conditions of the Federal award prohibit the extension. (ii) The extension requires additional Federal funds. (iii) The extension involves any change in the approved objectives or scope of the project. (3) Carry forward unobligated balances to subsequent periods of performance. (4) For Federal awards that support research, unless the Federal awarding agency provides otherwise in the Federal award or in the Federal awarding agency’s regulations, the prior approval requirements described in paragraph (d) are automatically waived (i.e., recipients need not obtain such prior approvals) unless one of the conditions included in paragraph (d)(2) applies. (e) The Federal awarding agency may, at its option, restrict the transfer of funds among direct cost categories or programs, functions and activities for Federal awards in which the Federal share of the project exceeds the Simplified Acquisition Threshold and the cumulative amount of such transfers exceeds or is expected to exceed 10 percent of the total budget as last approved by the Federal awarding agency. The Federal awarding agency cannot permit a transfer that would cause any Federal appropriation to be used for purposes other than those consistent with the appropriation. (f) All other changes to nonconstruction budgets, except for the changes described in paragraph (c) of this section, do not require prior approval (see also § 200.407 Prior written approval (prior approval)). (g) For construction Federal awards, the recipient must request prior written approval promptly from the Federal awarding agency for budget revisions whenever paragraph (g)(1), (2), or (3) of this section applies. (1) The revision results from changes in the scope or the objective of the project or program. (2) The need arises for additional Federal funds to complete the project. (3) A revision is desired which involves specific costs for which prior written approval requirements may be imposed consistent with applicable OMB cost principles listed in Subpart E—Cost Principles of this Part. (4) No other prior approval requirements for budget revisions may be imposed unless a deviation has been approved by OMB. (5) When a Federal awarding agency makes a Federal award that provides support for construction and nonconstruction work, the Federal awarding agency may require the recipient to E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations obtain prior approval from the Federal awarding agency before making any fund or budget transfers between the two types of work supported. (h) When requesting approval for budget revisions, the recipient must use the same format for budget information that was used in the application, unless the Federal awarding agency indicates a letter of request suffices. (i) Within 30 calendar days from the date of receipt of the request for budget revisions, the Federal awarding agency must review the request and notify the recipient whether the budget revisions have been approved. If the revision is still under consideration at the end of 30 calendar days, the Federal awarding agency must inform the recipient in writing of the date when the recipient may expect the decision. § 200.309 Period of performance. A non-Federal entity may charge to the Federal award only allowable costs incurred during the period of performance and any costs incurred before the Federal awarding agency or pass-through entity made the Federal award that were authorized by the Federal awarding agency or passthrough entity. Property Standards § 200.310 Insurance coverage. The non-Federal entity must, at a minimum, provide the equivalent insurance coverage for real property and equipment acquired or improved with Federal funds as provided to property owned by the non-Federal entity. Federally-owned property need not be insured unless required by the terms and conditions of the Federal award. tkelley on DSK3SPTVN1PROD with RULES3 § 200.311 Real property. (a) Title. Subject to the obligations and conditions set forth in this section, title to real property acquired or improved under a Federal award will vest upon acquisition in the non-Federal entity. (b) Use. Except as otherwise provided by Federal statutes or by the Federal awarding agency, real property will be used for the originally authorized purpose as long as needed for that purpose, during which time the nonFederal entity must not dispose of or encumber its title or other interests. (c) Disposition. When real property is no longer needed for the originally authorized purpose, the non-Federal entity must obtain disposition instructions from the Federal awarding agency or pass-through entity. The instructions must provide for one of the following alternatives: VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (1) Retain title after compensating the Federal awarding agency. The amount paid to the Federal awarding agency will be computed by applying the Federal awarding agency’s percentage of participation in the cost of the original purchase (and costs of any improvements) to the fair market value of the property. However, in those situations where non-Federal entity is disposing of real property acquired or improved with a Federal award and acquiring replacement real property under the same Federal award, the net proceeds from the disposition may be used as an offset to the cost of the replacement property. (2) Sell the property and compensate the Federal awarding agency. The amount due to the Federal awarding agency will be calculated by applying the Federal awarding agency’s percentage of participation in the cost of the original purchase (and cost of any improvements) to the proceeds of the sale after deduction of any actual and reasonable selling and fixing-up expenses. If the Federal award has not been closed out, the net proceeds from sale may be offset against the original cost of the property. When non-Federal entity is directed to sell property, sales procedures must be followed that provide for competition to the extent practicable and result in the highest possible return. (3) Transfer title to the Federal awarding agency or to a third party designated/approved by the Federal awarding agency. The non-Federal entity is entitled to be paid an amount calculated by applying the non-Federal entity’s percentage of participation in the purchase of the real property (and cost of any improvements) to the current fair market value of the property. § 200.312 property. Federally-owned and exempt (a) Title to federally-owned property remains vested in the Federal government. The non-Federal entity must submit annually an inventory listing of federally-owned property in its custody to the Federal awarding agency. Upon completion of the Federal award or when the property is no longer needed, the non-Federal entity must report the property to the Federal awarding agency for further Federal agency utilization. (b) If the Federal awarding agency has no further need for the property, it must declare the property excess and report it for disposal to the appropriate Federal disposal authority, unless the Federal awarding agency has statutory authority to dispose of the property by alternative methods (e.g., the authority provided by PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 78629 the Federal Technology Transfer Act (15 U.S.C. 3710 (i)) to donate research equipment to educational and nonprofit organizations in accordance with Executive Order 12999, ‘‘Educational Technology: Ensuring Opportunity for All Children in the Next Century.’’). The Federal awarding agency must issue appropriate instructions to the nonFederal entity. (c) Exempt federally-owned property means property acquired under a Federal award the title based upon the explicit terms and conditions of the Federal award that indicate the Federal awarding agency has chosen to vest in the non-Federal entity without further obligation to the Federal government or under conditions the Federal agency considers appropriate. The Federal awarding agency may exercise this option when statutory authority exists. Absent statutory authority and specific terms and conditions of the Federal award, title to exempt federally-owned property acquired under the Federal award remains with the Federal government. § 200.313 Equipment. See also § 200.439 Equipment and other capital expenditures. (a) Title. Subject to the obligations and conditions set forth in this section, title to equipment acquired under a Federal award will vest upon acquisition in the non-Federal entity. Unless a statute specifically authorizes the Federal agency to vest title in the non-Federal entity without further obligation to the Federal government, and the Federal agency elects to do so, the title must be a conditional title. Title must vest in the non-Federal entity subject to the following conditions: (1) Use the equipment for the authorized purposes of the project until funding for the project ceases, or until the property is no longer needed for the purposes of the project. (2) Not encumber the property without approval of the Federal awarding agency or pass-through entity. (3) Use and dispose of the property in accordance with paragraphs (b), (c) and (e) of this section. (b) A state must use, manage and dispose of equipment acquired under a Federal award by the state in accordance with state laws and procedures. Other non-Federal entities must follow paragraphs (c) through (e) of this section. (c) Use. (1) Equipment must be used by the non-Federal entity in the program or project for which it was acquired as long as needed, whether or not the project or program continues to be supported by E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78630 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations the Federal award, and the non-Federal entity must not encumber the property without prior approval of the Federal awarding agency. When no longer needed for the original program or project, the equipment may be used in other activities supported by the Federal awarding agency, in the following order of priority: (i) Activities under a Federal award from the Federal awarding agency which funded the original program or project, then (ii) Activities under Federal awards from other Federal awarding agencies. This includes consolidated equipment for information technology systems. (2) During the time that equipment is used on the project or program for which it was acquired, the non-Federal entity must also make equipment available for use on other projects or programs currently or previously supported by the Federal government, provided that such use will not interfere with the work on the projects or program for which it was originally acquired. First preference for other use must be given to other programs or projects supported by Federal awarding agency that financed the equipment and second preference must be given to programs or projects under Federal awards from other Federal awarding agencies. Use for non-federally-funded programs or projects is also permissible. User fees should be considered if appropriate. (3) Notwithstanding the encouragement in § 200.307 Program income to earn program income, the non-Federal entity must not use equipment acquired with the Federal award to provide services for a fee that is less than private companies charge for equivalent services unless specifically authorized by Federal statute for as long as the Federal government retains an interest in the equipment. (4) When acquiring replacement equipment, the non-Federal entity may use the equipment to be replaced as a trade-in or sell the property and use the proceeds to offset the cost of the replacement property. (d) Management requirements. Procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum, meet the following requirements: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. (e) Disposition. When original or replacement equipment acquired under a Federal award is no longer needed for the original project or program or for other activities currently or previously supported by a Federal awarding agency, except as otherwise provided in Federal statutes, regulations, or Federal awarding agency disposition instructions, the non-Federal entity must request disposition instructions from the Federal awarding agency if required by the terms and conditions of the Federal award. Disposition of the equipment will be made as follows, in accordance with Federal awarding agency disposition instructions: (1) Items of equipment with a current per unit fair market value of $5,000 or less may be retained, sold or otherwise disposed of with no further obligation to the Federal awarding agency. (2) Except as provided in § 200.312 Federally-owned and exempt property, paragraph (b), or if the Federal awarding agency fails to provide requested disposition instructions within 120 days, items of equipment with a current per-unit fair-market value in excess of $5,000 may be retained by the nonFederal entity or sold. The Federal awarding agency is entitled to an amount calculated by multiplying the current market value or proceeds from sale by the Federal awarding agency’s percentage of participation in the cost of the original purchase. If the equipment is sold, the Federal awarding agency may permit the non-Federal entity to deduct and retain from the Federal share $500 or ten percent of the proceeds, whichever is less, for its selling and handling expenses. (3) The non-Federal entity may transfer title to the property to the PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 Federal Government or to an eligible third party provided that, in such cases, the non-Federal entity must be entitled to compensation for its attributable percentage of the current fair market value of the property. (4) In cases where a non-Federal entity fails to take appropriate disposition actions, the Federal awarding agency may direct the nonFederal entity to take disposition actions. § 200.314 Supplies. See also § 200.453 Materials and supplies costs, including costs of computing devices. (a) Title to supplies will vest in the non-Federal entity upon acquisition. If there is a residual inventory of unused supplies exceeding $5,000 in total aggregate value upon termination or completion of the project or program and the supplies are not needed for any other Federal award, the non-Federal entity must retain the supplies for use on other activities or sell them, but must, in either case, compensate the Federal government for its share. The amount of compensation must be computed in the same manner as for equipment. See § 200.313 Equipment, paragraph (e)(2) for the calculation methodology. (b) As long as the Federal government retains an interest in the supplies, the non-Federal entity must not use supplies acquired under a Federal award to provide services to other organizations for a fee that is less than private companies charge for equivalent services, unless specifically authorized by Federal statute. § 200.315 Intangible property. (a) Title to intangible property (see § 200.59 Intangible property) acquired under a Federal award vests upon acquisition in the non-Federal entity. The non-Federal entity must use that property for the originally-authorized purpose, and must not encumber the property without approval of the Federal awarding agency. When no longer needed for the originally authorized purpose, disposition of the intangible property must occur in accordance with the provisions in § 200.313 Equipment paragraph (e). (b) The non-Federal entity may copyright any work that is subject to copyright and was developed, or for which ownership was acquired, under a Federal award. The Federal awarding agency reserves a royalty-free, nonexclusive and irrevocable right to reproduce, publish, or otherwise use the work for Federal purposes, and to authorize others to do so. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (c) The non-Federal entity is subject to applicable regulations governing patents and inventions, including governmentwide regulations issued by the Department of Commerce at 37 CFR Part 401, ‘‘Rights to Inventions Made by Nonprofit Organizations and Small Business Firms Under Government Awards, Contracts and Cooperative Agreements.’’ (d) The Federal government has the right to: (1) Obtain, reproduce, publish, or otherwise use the data produced under a Federal award; and (2) Authorize others to receive, reproduce, publish, or otherwise use such data for Federal purposes. (e) Freedom of Information Act (FOIA). (1) In addition, in response to a Freedom of Information Act (FOIA) request for research data relating to published research findings produced under a Federal award that were used by the Federal government in developing an agency action that has the force and effect of law, the Federal awarding agency must request, and the non-Federal entity must provide, within a reasonable time, the research data so that they can be made available to the public through the procedures established under the FOIA. If the Federal awarding agency obtains the research data solely in response to a FOIA request, the Federal awarding agency may charge the requester a reasonable fee equaling the full incremental cost of obtaining the research data. This fee should reflect costs incurred by the Federal agency and the non-Federal entity. This fee is in addition to any fees the Federal awarding agency may assess under the FOIA (5 U.S.C. 552(a)(4)(A)). (2) Published research findings means when: (i) Research findings are published in a peer-reviewed scientific or technical journal; or (ii) A Federal agency publicly and officially cites the research findings in support of an agency action that has the force and effect of law. ‘‘Used by the Federal government in developing an agency action that has the force and effect of law’’ is defined as when an agency publicly and officially cites the research findings in support of an agency action that has the force and effect of law. (3) Research data means the recorded factual material commonly accepted in the scientific community as necessary to validate research findings, but not any of the following: preliminary analyses, drafts of scientific papers, plans for future research, peer reviews, or VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 communications with colleagues. This ‘‘recorded’’ material excludes physical objects (e.g., laboratory samples). Research data also do not include: (i) Trade secrets, commercial information, materials necessary to be held confidential by a researcher until they are published, or similar information which is protected under law; and (ii) Personnel and medical information and similar information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy, such as information that could be used to identify a particular person in a research study. § 200.316 Property trust relationship. Real property, equipment, and intangible property, that are acquired or improved with a Federal award must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved. The Federal awarding agency may require the non-Federal entity to record liens or other appropriate notices of record to indicate that personal or real property has been acquired or improved with a Federal award and that use and disposition conditions apply to the property. Procurement Standards § 200.317 Procurements by states. When procuring property and services under a Federal award, a state must follow the same policies and procedures it uses for procurements from its nonFederal funds. The state will comply with § 200.322 Procurement of recovered materials and ensure that every purchase order or other contract includes any clauses required by section § 200.326 Contract provisions. All other non-Federal entities, including subrecipients of a state, will follow §§ 200.318 General procurement standards through 200.326 Contract provisions. § 200.318 General procurement standards. (a) The non-Federal entity must use its own documented procurement procedures which reflect applicable State and local laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in this section. (b) Non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. (c)(1) The non-Federal entity must maintain written standards of conduct covering conflicts of interest and PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 78631 governing the performance of its employees engaged in the selection, award and administration of contracts. No employee, officer, or agent must participate in the selection, award, or administration of a contract supported by a Federal award if he or she has a real or apparent conflict of interest. Such a conflict of interest would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract. The officers, employees, and agents of the nonFederal entity must neither solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to subcontracts. However, nonFederal entities may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value. The standards of conduct must provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the non-Federal entity. (2) If the non-Federal entity has a parent, affiliate, or subsidiary organization that is not a state, local government, or Indian tribe, the nonFederal entity must also maintain written standards of conduct covering organizational conflicts of interest. Organizational conflicts of interest means that because of relationships with a parent company, affiliate, or subsidiary organization, the non-Federal entity is unable or appears to be unable to be impartial in conducting a procurement action involving a related organization. (d) The non-Federal entity’s procedures must avoid acquisition of unnecessary or duplicative items. Consideration should be given to consolidating or breaking out procurements to obtain a more economical purchase. Where appropriate, an analysis will be made of lease versus purchase alternatives, and any other appropriate analysis to determine the most economical approach. (e) To foster greater economy and efficiency, and in accordance with efforts to promote cost-effective use of shared services across the Federal government, the non-Federal entity is encouraged to enter into state and local intergovernmental agreements or interentity agreements where appropriate for procurement or use of common or shared goods and services. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78632 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (f) The non-Federal entity is encouraged to use Federal excess and surplus property in lieu of purchasing new equipment and property whenever such use is feasible and reduces project costs. (g) The non-Federal entity is encouraged to use value engineering clauses in contracts for construction projects of sufficient size to offer reasonable opportunities for cost reductions. Value engineering is a systematic and creative analysis of each contract item or task to ensure that its essential function is provided at the overall lower cost. (h) The non-Federal entity must award contracts only to responsible contractors possessing the ability to perform successfully under the terms and conditions of a proposed procurement. Consideration will be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources. (i) The non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. (j)(1) The non-Federal entity may use time and material type contracts only after a determination that no other contract is suitable and if the contract includes a ceiling price that the contractor exceeds at its own risk. Time and material type contract means a contract whose cost to a non-Federal entity is the sum of: (i) The actual cost of materials; and (ii) Direct labor hours charged at fixed hourly rates that reflect wages, general and administrative expenses, and profit. (2) Since this formula generates an open-ended contract price, a time-andmaterials contract provides no positive profit incentive to the contractor for cost control or labor efficiency. Therefore, each contract must set a ceiling price that the contractor exceeds at its own risk. Further, the non-Federal entity awarding such a contract must assert a high degree of oversight in order to obtain reasonable assurance that the contractor is using efficient methods and effective cost controls. (k) The non-Federal entity alone must be responsible, in accordance with good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements. These issues include, but are not limited to, source evaluation, protests, disputes, VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 and claims. These standards do not relieve the non-Federal entity of any contractual responsibilities under its contracts. The Federal awarding agency will not substitute its judgment for that of the non-Federal entity unless the matter is primarily a Federal concern. Violations of law will be referred to the local, state, or Federal authority having proper jurisdiction. § 200.319 Competition. (a) All procurement transactions must be conducted in a manner providing full and open competition consistent with the standards of this section. In order to ensure objective contractor performance and eliminate unfair competitive advantage, contractors that develop or draft specifications, requirements, statements of work, and invitations for bids or requests for proposals must be excluded from competing for such procurements. Some of the situations considered to be restrictive of competition include but are not limited to: (1) Placing unreasonable requirements on firms in order for them to qualify to do business; (2) Requiring unnecessary experience and excessive bonding; (3) Noncompetitive pricing practices between firms or between affiliated companies; (4) Noncompetitive contracts to consultants that are on retainer contracts; (5) Organizational conflicts of interest; (6) Specifying only a ‘‘brand name’’ product instead of allowing ‘‘an equal’’ product to be offered and describing the performance or other relevant requirements of the procurement; and (7) Any arbitrary action in the procurement process. (b) The non-Federal entity must conduct procurements in a manner that prohibits the use of statutorily or administratively imposed state or local geographical preferences in the evaluation of bids or proposals, except in those cases where applicable Federal statutes expressly mandate or encourage geographic preference. Nothing in this section preempts state licensing laws. When contracting for architectural and engineering (A/E) services, geographic location may be a selection criterion provided its application leaves an appropriate number of qualified firms, given the nature and size of the project, to compete for the contract. (c) The non-Federal entity must have written procedures for procurement transactions. These procedures must ensure that all solicitations: (1) Incorporate a clear and accurate description of the technical PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 requirements for the material, product, or service to be procured. Such description must not, in competitive procurements, contain features which unduly restrict competition. The description may include a statement of the qualitative nature of the material, product or service to be procured and, when necessary, must set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use. Detailed product specifications should be avoided if at all possible. When it is impractical or uneconomical to make a clear and accurate description of the technical requirements, a ‘‘brand name or equivalent’’ description may be used as a means to define the performance or other salient requirements of procurement. The specific features of the named brand which must be met by offers must be clearly stated; and (2) Identify all requirements which the offerors must fulfill and all other factors to be used in evaluating bids or proposals. (d) The non-Federal entity must ensure that all prequalified lists of persons, firms, or products which are used in acquiring goods and services are current and include enough qualified sources to ensure maximum open and free competition. Also, the non-Federal entity must not preclude potential bidders from qualifying during the solicitation period. § 200.320 followed. Methods of procurement to be The non-Federal entity must use one of the following methods of procurement. (a) Procurement by micro-purchases. Procurement by micro-purchase is the acquisition of supplies or services, the aggregate dollar amount of which does not exceed $3,000 (or $2,000 in the case of acquisitions for construction subject to the Davis-Bacon Act). To the extent practicable, the non-Federal entity must distribute micro-purchases equitably among qualified suppliers. Micropurchases may be awarded without soliciting competitive quotations if the non-Federal entity considers the price to be reasonable. (b) Procurement by small purchase procedures. Small purchase procedures are those relatively simple and informal procurement methods for securing services, supplies, or other property that do not cost more than the Simplified Acquisition Threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (c) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm fixed price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bid method is the preferred method for procuring construction, if the conditions in paragraph (c)(1) of this section apply. (1) In order for sealed bidding to be feasible, the following conditions should be present: (i) A complete, adequate, and realistic specification or purchase description is available; (ii) Two or more responsible bidders are willing and able to compete effectively for the business; and (iii) The procurement lends itself to a firm fixed price contract and the selection of the successful bidder can be made principally on the basis of price. (2) If sealed bids are used, the following requirements apply: (i) The invitation for bids will be publicly advertised and bids must be solicited from an adequate number of known suppliers, providing them sufficient response time prior to the date set for opening the bids; (ii) The invitation for bids, which will include any specifications and pertinent attachments, must define the items or services in order for the bidder to properly respond; (iii) All bids will be publicly opened at the time and place prescribed in the invitation for bids; (iv) A firm fixed price contract award will be made in writing to the lowest responsive and responsible bidder. Where specified in bidding documents, factors such as discounts, transportation cost, and life cycle costs must be considered in determining which bid is lowest. Payment discounts will only be used to determine the low bid when prior experience indicates that such discounts are usually taken advantage of; and (v) Any or all bids may be rejected if there is a sound documented reason. (d) Procurement by competitive proposals. The technique of competitive proposals is normally conducted with more than one source submitting an offer, and either a fixed price or costreimbursement type contract is awarded. It is generally used when conditions are not appropriate for the use of sealed bids. If this method is used, the following requirements apply: (1) Requests for proposals must be publicized and identify all evaluation factors and their relative importance. Any response to publicized requests for VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 proposals must be considered to the maximum extent practical; (2) Proposals must be solicited from an adequate number of qualified sources; (3) The non-Federal entity must have a written method for conducting technical evaluations of the proposals received and for selecting recipients; (4) Contracts must be awarded to the responsible firm whose proposal is most advantageous to the program, with price and other factors considered; and (5) The non-Federal entity may use competitive proposal procedures for qualifications-based procurement of architectural/engineering (A/E) professional services whereby competitors’ qualifications are evaluated and the most qualified competitor is selected, subject to negotiation of fair and reasonable compensation. The method, where price is not used as a selection factor, can only be used in procurement of A/E professional services. It cannot be used to purchase other types of services though A/E firms are a potential source to perform the proposed effort. (f) Procurement by noncompetitive proposals. Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one source and may be used only when one or more of the following circumstances apply: (1) The item is available only from a single source; (2) The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation; (3) The Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-Federal entity; or (4) After solicitation of a number of sources, competition is determined inadequate. § 200.321 Contracting with small and minority businesses, women’s business enterprises, and labor surplus area firms. (a) The non-Federal entity must take all necessary affirmative steps to assure that minority businesses, women’s business enterprises, and labor surplus area firms are used when possible. (b) Affirmative steps must include: (1) Placing qualified small and minority businesses and women’s business enterprises on solicitation lists; (2) Assuring that small and minority businesses, and women’s business enterprises are solicited whenever they are potential sources; (3) Dividing total requirements, when economically feasible, into smaller tasks PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 78633 or quantities to permit maximum participation by small and minority businesses, and women’s business enterprises; (4) Establishing delivery schedules, where the requirement permits, which encourage participation by small and minority businesses, and women’s business enterprises; (5) Using the services and assistance, as appropriate, of such organizations as the Small Business Administration and the Minority Business Development Agency of the Department of Commerce; and (6) Requiring the prime contractor, if subcontracts are to be let, to take the affirmative steps listed in paragraphs (1) through (5) of this section. § 200.322 Procurement of recovered materials. A non-Federal entity that is a state agency or agency of a political subdivision of a state and its contractors must comply with section 6002 of the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act. The requirements of Section 6002 include procuring only items designated in guidelines of the Environmental Protection Agency (EPA) at 40 CFR Part 247 that contain the highest percentage of recovered materials practicable, consistent with maintaining a satisfactory level of competition, where the purchase price of the item exceeds $10,000 or the value of the quantity acquired by the preceding fiscal year exceeded $10,000; procuring solid waste management services in a manner that maximizes energy and resource recovery; and establishing an affirmative procurement program for procurement of recovered materials identified in the EPA guidelines. § 200.323 Contract cost and price. (a) The non-Federal entity must perform a cost or price analysis in connection with every procurement action in excess of the Simplified Acquisition Threshold including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the non-Federal entity must make independent estimates before receiving bids or proposals. (b) The non-Federal entity must negotiate profit as a separate element of the price for each contract in which there is no price competition and in all cases where cost analysis is performed. To establish a fair and reasonable profit, consideration must be given to the complexity of the work to be performed, E:\FR\FM\26DER3.SGM 26DER3 78634 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations the risk borne by the contractor, the contractor’s investment, the amount of subcontracting, the quality of its record of past performance, and industry profit rates in the surrounding geographical area for similar work. (c) Costs or prices based on estimated costs for contracts under the Federal award are allowable only to the extent that costs incurred or cost estimates included in negotiated prices would be allowable for the non-Federal entity under Subpart E—Cost Principles of this Part. The non-Federal entity may reference its own cost principles that comply with the Federal cost principles. (d) The cost plus a percentage of cost and percentage of construction cost methods of contracting must not be used. tkelley on DSK3SPTVN1PROD with RULES3 § 200.324 Federal awarding agency or pass-through entity review. (a) The non-Federal entity must make available, upon request of the Federal awarding agency or pass-through entity, technical specifications on proposed procurements where the Federal awarding agency or pass-through entity believes such review is needed to ensure that the item or service specified is the one being proposed for acquisition. This review generally will take place prior to the time the specification is incorporated into a solicitation document. However, if the non-Federal entity desires to have the review accomplished after a solicitation has been developed, the Federal awarding agency or pass-through entity may still review the specifications, with such review usually limited to the technical aspects of the proposed purchase. (b) The non-Federal entity must make available upon request, for the Federal awarding agency or pass-through entity pre-procurement review, procurement documents, such as requests for proposals or invitations for bids, or independent cost estimates, when: (1) The non-Federal entity’s procurement procedures or operation fails to comply with the procurement standards in this Part; (2) The procurement is expected to exceed the Simplified Acquisition Threshold and is to be awarded without competition or only one bid or offer is received in response to a solicitation; (3) The procurement, which is expected to exceed the Simplified Acquisition Threshold, specifies a ‘‘brand name’’ product; (4) The proposed contract is more than the Simplified Acquisition Threshold and is to be awarded to other than the apparent low bidder under a sealed bid procurement; or VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (5) A proposed contract modification changes the scope of a contract or increases the contract amount by more than the Simplified Acquisition Threshold. (c) The non-Federal entity is exempt from the pre-procurement review in paragraph (b) of this section if the Federal awarding agency or passthrough entity determines that its procurement systems comply with the standards of this Part. (1) The non-Federal entity may request that its procurement system be reviewed by the Federal awarding agency or pass-through entity to determine whether its system meets these standards in order for its system to be certified. Generally, these reviews must occur where there is continuous high-dollar funding, and third party contracts are awarded on a regular basis; (2) The non-Federal entity may selfcertify its procurement system. Such self-certification must not limit the Federal awarding agency’s right to survey the system. Under a selfcertification procedure, the Federal awarding agency may rely on written assurances from the non-Federal entity that it is complying with these standards. The non-Federal entity must cite specific policies, procedures, regulations, or standards as being in compliance with these requirements and have its system available for review. § 200.325 Bonding requirements. For construction or facility improvement contracts or subcontracts exceeding the Simplified Acquisition Threshold, the Federal awarding agency or pass-through entity may accept the bonding policy and requirements of the non-Federal entity provided that the Federal awarding agency or passthrough entity has made a determination that the Federal interest is adequately protected. If such a determination has not been made, the minimum requirements must be as follows: (a) A bid guarantee from each bidder equivalent to five percent of the bid price. The ‘‘bid guarantee’’ must consist of a firm commitment such as a bid bond, certified check, or other negotiable instrument accompanying a bid as assurance that the bidder will, upon acceptance of the bid, execute such contractual documents as may be required within the time specified. (b) A performance bond on the part of the contractor for 100 percent of the contract price. A ‘‘performance bond’’ is one executed in connection with a contract to secure fulfillment of all the contractor’s obligations under such contract. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 (c) A payment bond on the part of the contractor for 100 percent of the contract price. A ‘‘payment bond’’ is one executed in connection with a contract to assure payment as required by law of all persons supplying labor and material in the execution of the work provided for in the contract. § 200.326 Contract provisions. The non-Federal entity’s contracts must contain the applicable provisions described in Appendix II to Part 200— Contract Provisions for non-Federal Entity Contracts Under Federal Awards. Performance and Financial Monitoring and Reporting § 200.327 Financial reporting. Unless otherwise approved by OMB, the Federal awarding agency may solicit only the standard, OMB-approved governmentwide data elements for collection of financial information (at time of publication the Federal Financial Report or such future collections as may be approved by OMB and listed on the OMB Web site). This information must be collected with the frequency required by the terms and conditions of the Federal award, but no less frequently than annually nor more frequently than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes, and preferably in coordination with performance reporting. 200.328 Monitoring and reporting program performance. (a) Monitoring by the non-Federal entity. The non-Federal entity is responsible for oversight of the operations of the Federal award supported activities. The non-Federal entity must monitor its activities under Federal awards to assure compliance with applicable Federal requirements and performance expectations are being achieved. Monitoring by the nonFederal entity must cover each program, function or activity. See also § 200.331 Requirements for pass-through entities. (b) Non-construction performance reports. The Federal awarding agency must use standard, OMB-approved data elements for collection of performance information (including performance progress reports, Research Performance Progress Report, or such future collections as may be approved by OMB and listed on the OMB Web site). (1) The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Annual reports must be due 90 calendar days after the reporting period; quarterly or semiannual reports must be due 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report will be due 90 calendar days after the period of performance end date. If a justified request is submitted by a nonFederal entity, the Federal agency may extend the due date for any performance report. (2) The non-Federal entity must submit performance reports using OMBapproved governmentwide standard information collections when providing performance information. As appropriate in accordance with above mentioned information collections, these reports will contain, for each Federal award, brief information on the following unless other collections are approved by OMB: (i) A comparison of actual accomplishments to the objectives of the Federal award established for the period. Where the accomplishments of the Federal award can be quantified, a computation of the cost (for example, related to units of accomplishment) may be required if that information will be useful. Where performance trend data and analysis would be informative to the Federal awarding agency program, the Federal awarding agency should include this as a performance reporting requirement. (ii) The reasons why established goals were not met, if appropriate. (iii) Additional pertinent information including, when appropriate, analysis and explanation of cost overruns or high unit costs. (c) Construction performance reports. For the most part, onsite technical inspections and certified percentage of completion data are relied on heavily by Federal awarding agencies and passthrough entities to monitor progress under Federal awards and subawards for construction. The Federal awarding agency may require additional performance reports only when considered necessary. (d) Significant developments. Events may occur between the scheduled performance reporting dates that have VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 significant impact upon the supported activity. In such cases, the non-Federal entity must inform the Federal awarding agency or pass-through entity as soon as the following types of conditions become known: (1) Problems, delays, or adverse conditions which will materially impair the ability to meet the objective of the Federal award. This disclosure must include a statement of the action taken, or contemplated, and any assistance needed to resolve the situation. (2) Favorable developments which enable meeting time schedules and objectives sooner or at less cost than anticipated or producing more or different beneficial results than originally planned. (e) The Federal awarding agency may make site visits as warranted by program needs. (f) The Federal awarding agency may waive any performance report required by this Part if not needed. § 200.329 Reporting on real property. The Federal awarding agency or passthrough entity must require a nonFederal entity to submit reports at least annually on the status of real property in which the Federal government retains an interest, unless the Federal interest in the real property extends 15 years or longer. In those instances where the Federal interest attached is for a period of 15 years or more, the Federal awarding agency or pass-through entity, at its option, may require the nonFederal entity to report at various multiyear frequencies (e.g., every two years or every three years, not to exceed a fiveyear reporting period; or a Federal awarding agency or pass-through entity may require annual reporting for the first three years of a Federal award and thereafter require reporting every five years). Subrecipient Monitoring and Management § 200.330 Subrecipient and contractor determinations. The non-Federal entity may concurrently receive Federal awards as a recipient, a subrecipient, and a contractor, depending on the substance of its agreements with Federal awarding agencies and pass-through entities. Therefore, a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. The Federal awarding agency may supply and require recipients to comply with additional guidance to support these determinations provided such PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 78635 guidance does not conflict with this section. (a) Subrecipients. A subaward is for the purpose of carrying out a portion of a Federal award and creates a Federal assistance relationship with the subrecipient. See § 200.92 Subaward. Characteristics which support the classification of the non-Federal entity as a subrecipient include when the nonFederal entity: (1) Determines who is eligible to receive what Federal assistance; (2) Has its performance measured in relation to whether objectives of a Federal program were met; (3) Has responsibility for programmatic decision making; (4) Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and (5) In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity. (b) Contractors. A contract is for the purpose of obtaining goods and services for the non-Federal entity’s own use and creates a procurement relationship with the contractor. See § 200.22 Contract. Characteristics indicative of a procurement relationship between the non-Federal entity and a contractor are when the non-Federal entity receiving the Federal funds: (1) Provides the goods and services within normal business operations; (2) Provides similar goods or services to many different purchasers; (3) Normally operates in a competitive environment; (4) Provides goods or services that are ancillary to the operation of the Federal program; and (5) Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons. (c) Use of judgment in making determination. In determining whether an agreement between a pass-through entity and another non-Federal entity casts the latter as a subrecipient or a contractor, the substance of the relationship is more important than the form of the agreement. All of the characteristics listed above may not be present in all cases, and the passthrough entity must use judgment in classifying each agreement as a subaward or a procurement contract. § 200.331 entities. Requirements for pass-through All pass-through entities must: E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78636 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. Required information includes: (1) Federal Award Identification. (i) Subrecipient name (which must match registered name in DUNS); (ii) Subrecipient’s DUNS number (see § 200.32 Data Universal Numbering System (DUNS) number); (iii) Federal Award Identification Number (FAIN); (iv) Federal Award Date (see § 200.39 Federal award date); (v) Subaward Period of Performance Start and End Date; (vi) Amount of Federal Funds Obligated by this action; (vii) Total Amount of Federal Funds Obligated to the subrecipient; (viii) Total Amount of the Federal Award; (ix) Federal award project description, as required to be responsive to the Federal Funding Accountability and Transparency Act (FFATA); (x) Name of Federal awarding agency, pass-through entity, and contact information for awarding official, (xi) CFDA Number and Name; the pass-through entity must identify the dollar amount made available under each Federal award and the CFDA number at time of disbursement; (xii) Identification of whether the award is R&D; and (xiii) Indirect cost rate for the Federal award (including if the de minimis rate is charged per § 200.414 Indirect (F&A) costs). (2) All requirements imposed by the pass-through entity on the subrecipient so that the Federal award is used in accordance with Federal statutes, regulations and the terms and conditions of the Federal award. (3) Any additional requirements that the pass-through entity imposes on the subrecipient in order for the passthrough entity to meet its own responsibility to the Federal awarding agency including identification of any required financial and performance reports; (4) An approved federally recognized indirect cost rate negotiated between the subrecipient and the Federal government or, if no such rate exists, either a rate negotiated between the pass-through entity and the subrecipient VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (in compliance with this Part), or a de minimis indirect cost rate as defined in § 200.414 Indirect (F&A) costs, paragraph (b) of this Part. (5) A requirement that the subrecipient permit the pass-through entity and auditors to have access to the subrecipient’s records and financial statements as necessary for the passthrough entity to meet the requirements of this section, §§ 200.300 Statutory and national policy requirements through 200.309 Period of performance, and Subpart F—Audit Requirements of this Part; and (6) Appropriate terms and conditions concerning closeout of the subaward. (b) Evaluate each subrecipient’s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraph (e) of this section, which may include consideration of such factors as: (1) The subrecipient’s prior experience with the same or similar subawards; (2) The results of previous audits including whether or not the subrecipient receives a Single Audit in accordance with Subpart F—Audit Requirements of this Part, and the extent to which the same or similar subaward has been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of Federal awarding agency monitoring (e.g., if the subrecipient also receives Federal awards directly from a Federal awarding agency). (c) Consider imposing specific subaward conditions upon a subrecipient if appropriate as described in § 200.207 Specific conditions. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and programmatic reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and other means. PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 (3) Issuing a management decision for audit findings pertaining to the Federal award provided to the subrecipient from the pass-through entity as required by § 200.521 Management decision. (e) Depending upon the pass-through entity’s assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1) Providing subrecipients with training and technical assistance on program-related matters; and (2) Performing on-site reviews of the subrecipient’s program operations; (3) Arranging for agreed-uponprocedures engagements as described in § 200.425 Audit services. (f) Verify that every subrecipient is audited as required by Subpart F— Audit Requirements of this Part when it is expected that the subrecipient’s Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 200.501 Audit requirements. (g) Consider whether the results of the subrecipient’s audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the passthrough entity’s own records. (h) Consider taking enforcement action against noncompliant subrecipients as described in § 200.338 Remedies for noncompliance of this Part and in program regulations. § 200.332 Fixed amount subawards. With prior written approval from the Federal awarding agency, a passthrough entity may provide subawards based on fixed amounts up to the Simplified Acquisition Threshold, provided that the subawards meet the requirements for fixed amount awards in § 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts. Record Retention and Access § 200.333 records. Retention requirements for Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations subrecipient. Federal awarding agencies and pass-through entities must not impose any other record retention requirements upon non-Federal entities. The only exceptions are the following: (a) If any litigation, claim, or audit is started before the expiration of the 3year period, the records must be retained until all litigation, claims, or audit findings involving the records have been resolved and final action taken. (b) When the non-Federal entity is notified in writing by the Federal awarding agency, cognizant agency for audit, oversight agency for audit, cognizant agency for indirect costs, or pass-through entity to extend the retention period. (c) Records for real property and equipment acquired with Federal funds must be retained for 3 years after final disposition. (d) When records are transferred to or maintained by the Federal awarding agency or pass-through entity, the 3-year retention requirement is not applicable to the non-Federal entity. (e) Records for program income transactions after the period of performance. In some cases recipients must report program income after the period of performance. Where there is such a requirement, the retention period for the records pertaining to the earning of the program income starts from the end of the non-Federal entity’s fiscal year in which the program income is earned. (f) Indirect cost rate proposals and cost allocations plans. This paragraph applies to the following types of documents and their supporting records: indirect cost rate computations or proposals, cost allocation plans, and any similar accounting computations of the rate at which a particular group of costs is chargeable (such as computer usage chargeback rates or composite fringe benefit rates). (1) If submitted for negotiation. If the proposal, plan, or other computation is required to be submitted to the Federal government (or to the pass-through entity) to form the basis for negotiation of the rate, then the 3-year retention period for its supporting records starts from the date of such submission. (2) If not submitted for negotiation. If the proposal, plan, or other computation is not required to be submitted to the Federal government (or to the passthrough entity) for negotiation purposes, then the 3-year retention period for the proposal, plan, or computation and its supporting records starts from the end of the fiscal year (or other accounting period) covered by the proposal, plan, or other computation. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 § 200.334 Requests for transfer of records. The Federal awarding agency must request transfer of certain records to its custody from the non-Federal entity when it determines that the records possess long-term retention value. However, in order to avoid duplicate recordkeeping, the Federal awarding agency may make arrangements for the non-Federal entity to retain any records that are continuously needed for joint use. § 200.335 Methods for collection, transmission and storage of information. In accordance with the May 2013 Executive Order on Making Open and Machine Readable the New Default for Government Information, the Federal awarding agency and the non-Federal entity should, whenever practicable, collect, transmit, and store Federal award-related information in open and machine readable formats rather than in closed formats or on paper. The Federal awarding agency or pass-through entity must always provide or accept paper versions of Federal award-related information to and from the non-Federal entity upon request. If paper copies are submitted, the Federal awarding agency or pass-through entity must not require more than an original and two copies. When original records are electronic and cannot be altered, there is no need to create and retain paper copies. When original records are paper, electronic versions may be substituted through the use of duplication or other forms of electronic media provided that they are subject to periodic quality control reviews, provide reasonable safeguards against alteration, and remain readable. § 200.336 Access to records. (a) Records of non-Federal entities. The Federal awarding agency, Inspectors General, the Comptroller General of the United States, and the pass-through entity, or any of their authorized representatives, must have the right of access to any documents, papers, or other records of the nonFederal entity which are pertinent to the Federal award, in order to make audits, examinations, excerpts, and transcripts. The right also includes timely and reasonable access to the non-Federal entity’s personnel for the purpose of interview and discussion related to such documents. (b) Only under extraordinary and rare circumstances would such access include review of the true name of victims of a crime. Routine monitoring cannot be considered extraordinary and rare circumstances that would necessitate access to this information. When access to the true name of victims PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 78637 of a crime is necessary, appropriate steps to protect this sensitive information must be taken by both the non-Federal entity and the Federal awarding agency. Any such access, other than under a court order or subpoena pursuant to a bona fide confidential investigation, must be approved by the head of the Federal awarding agency or delegate. (c) Expiration of right of access. The rights of access in this section are not limited to the required retention period but last as long as the records are retained. Federal awarding agencies and pass-through entities must not impose any other access requirements upon non-Federal entities. § 200.337 records Restrictions on public access to No Federal awarding agency may place restrictions on the non-Federal entity that limit public access to the records of the non-Federal entity pertinent to a Federal award, except for protected personally identifiable information (PII) or when the Federal awarding agency can demonstrate that such records will be kept confidential and would have been exempted from disclosure pursuant to the Freedom of Information Act (5 U.S.C. 552) or controlled unclassified information pursuant to Executive Order 13556 if the records had belonged to the Federal awarding agency. The Freedom of Information Act (5 U.S.C. 552) (FOIA) does not apply to those records that remain under a non-Federal entity’s control except as required under § 200.315 Intangible property. Unless required by Federal, state, or local statute, non-Federal entities are not required to permit public access to their records. The non-Federal entity’s records provided to a Federal agency generally will be subject to FOIA and applicable exemptions. Remedies for Noncompliance § 200.338 Remedies for noncompliance. If a non-Federal entity fails to comply with Federal statutes, regulations or the terms and conditions of a Federal award, the Federal awarding agency or pass-through entity may impose additional conditions, as described in § 200.207 Specific conditions. If the Federal awarding agency or passthrough entity determines that noncompliance cannot be remedied by imposing additional conditions, the Federal awarding agency or passthrough entity may take one or more of the following actions, as appropriate in the circumstances: (a) Temporarily withhold cash payments pending correction of the E:\FR\FM\26DER3.SGM 26DER3 78638 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations deficiency by the non-Federal entity or more severe enforcement action by the Federal awarding agency or passthrough entity. (b) Disallow (that is, deny both use of funds and any applicable matching credit for) all or part of the cost of the activity or action not in compliance. (c) Wholly or partly suspend or terminate the Federal award. (d) Initiate suspension or debarment proceedings as authorized under 2 CFR Part 180 and Federal awarding agency regulations (or in the case of a passthrough entity, recommend such a proceeding be initiated by a Federal awarding agency). (e) Withhold further Federal awards for the project or program. (f) Take other remedies that may be legally available. tkelley on DSK3SPTVN1PROD with RULES3 § 200.339 Termination (a) The Federal award may be terminated in whole or in part as follows: (1) By the Federal awarding agency or pass-through entity, if a non-Federal entity fails to comply with the terms and conditions of a Federal award; (2) By the Federal awarding agency or pass-through entity for cause; (3) By the Federal awarding agency or pass-through entity with the consent of the non-Federal entity, in which case the two parties must agree upon the termination conditions, including the effective date and, in the case of partial termination, the portion to be terminated; or (4) By the non-Federal entity upon sending to the Federal awarding agency or pass-through entity written notification setting forth the reasons for such termination, the effective date, and, in the case of partial termination, the portion to be terminated. However, if the Federal awarding agency or passthrough entity determines in the case of partial termination that the reduced or modified portion of the Federal award or subaward will not accomplish the purposes for which the Federal award was made, the Federal awarding agency or pass-through entity may terminate the Federal award in its entirety. (b) When a Federal award is terminated or partially terminated, both the Federal awarding agency or passthrough entity and the non-Federal entity remain responsible for compliance with the requirements in §§ 200.343 Closeout and 200.344 Postcloseout adjustments and continuing responsibilities. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 § 200.340 Notification of termination requirement. (a) The Federal agency or passthrough entity must provide to the nonFederal entity a notice of termination. (b) If the Federal award is terminated for the non-Federal entity’s failure to comply with the Federal statutes, regulations, or terms and conditions of the Federal award, the notification must state that the termination decision may be considered in evaluating future applications received from the nonFederal entity. (c) Upon termination of a Federal award, the Federal awarding agency must provide the information required under FFATA to the Federal Web site established to fulfill the requirements of FFATA, and update or notify any other relevant governmentwide systems or entities of any indications of poor performance as required by 41 U.S.C. 417b and 31 U.S.C. 3321 and implementing guidance at 2 CFR Part 77. See also the requirements for Suspension and Debarment at 2 CFR Part 180. § 200.341 Opportunities to object, hearings and appeals. Upon taking any remedy for noncompliance, the Federal awarding agency must provide the non-Federal entity an opportunity to object and provide information and documentation challenging the suspension or termination action, in accordance with written processes and procedures published by the Federal awarding agency. The Federal awarding agency or pass-through entity must comply with any requirements for hearings, appeals or other administrative proceedings which the non-Federal entity is entitled under any statute or regulation applicable to the action involved. § 200.342 Effects of suspension and termination. Costs to the non-Federal entity resulting from obligations incurred by the non-Federal entity during a suspension or after termination of a Federal award or subaward are not allowable unless the Federal awarding agency or pass-through entity expressly authorizes them in the notice of suspension or termination or subsequently. However, costs during suspension or after termination are allowable if: (a) The costs result from obligations which were properly incurred by the non-Federal entity before the effective date of suspension or termination, are not in anticipation of it; and (b) The costs would be allowable if the Federal award was not suspended or PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 expired normally at the end of the period of performance in which the termination takes effect. Closeout § 200.343 Closeout. The Federal agency or pass-through entity will close-out the Federal award when it determines that all applicable administrative actions and all required work of the Federal award have been completed by the non-Federal entity. This section specifies the actions the non-Federal entity and Federal awarding agency or pass-through entity must take to complete this process at the end of the period of performance. (a) The non-Federal entity must submit, no later than 90 calendar days after the end date of the period of performance, all financial, performance, and other reports as required by or the terms and conditions of the Federal award. The Federal awarding agency or pass-through entity may approve extensions when requested by the nonFederal entity. (b) Unless the Federal awarding agency or pass-through entity authorizes an extension, a non-Federal entity must liquidate all obligations incurred under the Federal award not later than 90 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award. (c) The Federal awarding agency or pass-through entity must make prompt payments to the non-Federal entity for allowable reimbursable costs under the Federal award being closed out. (d) The non-Federal entity must promptly refund any balances of unobligated cash that the Federal awarding agency or pass-through entity paid in advance or paid and that is not authorized to be retained by the nonFederal entity for use in other projects. See OMB Circular A–129 and see § 200.345 Collection of amounts due for requirements regarding unreturned amounts that become delinquent debts. (e) Consistent with the terms and conditions of the Federal award, the Federal awarding agency or passthrough entity must make a settlement for any upward or downward adjustments to the Federal share of costs after closeout reports are received. (f) The non-Federal entity must account for any real and personal property acquired with Federal funds or received from the Federal government in accordance with §§ 200.310 Insurance coverage through 200.316 Property trust relationship and 200.329 Reporting on real property. (g) The Federal awarding agency or pass-through entity should complete all E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations closeout actions for Federal awards no later than one year after receipt and acceptance of all required final reports. Post-Closeout Adjustments and Continuing Responsibilities § 200.344 Post-closeout adjustments and continuing responsibilities. (a) The closeout of a Federal award does not affect any of the following. (1) The right of the Federal awarding agency or pass-through entity to disallow costs and recover funds on the basis of a later audit or other review. The Federal awarding agency or passthrough entity must make any cost disallowance determination and notify the non-Federal entity within the record retention period. (2) The obligation of the non-Federal entity to return any funds due as a result of later refunds, corrections, or other transactions including final indirect cost rate adjustments. (3) Audit requirements in Subpart F— Audit Requirements of this Part. (4) Property management and disposition requirements in Subpart D— Post Federal Award Requirements of this Part, §§ 200.310 Insurance Coverage through 200.316 Property trust relationship. (5) Records retention as required in Subpart D—Post Federal Award Requirements of this Part, §§ 200.333 Retention requirements for records through 200.337 Restrictions on public access to records. (b) After closeout of the Federal award, a relationship created under the Federal award may be modified or ended in whole or in part with the consent of the Federal awarding agency or pass-through entity and the nonFederal entity, provided the responsibilities of the non-Federal entity referred to in paragraph (a) of this section including those for property management as applicable, are considered and provisions made for continuing responsibilities of the nonFederal entity, as appropriate. Collection of Amounts Due tkelley on DSK3SPTVN1PROD with RULES3 § 200.345 Collection of amounts due. (a) Any funds paid to the non-Federal entity in excess of the amount to which the non-Federal entity is finally determined to be entitled under the terms of the Federal award constitute a debt to the Federal government. If not paid within 90 calendar days after demand, the Federal awarding agency may reduce the debt by: (1) Making an administrative offset against other requests for reimbursements; VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 78639 Subpart E—Cost Principles See § 200.56 Indirect (facilities & administrative (F&A)) costs. (f) For non-Federal entities that educate and engage students in research, the dual role of students as both trainees and employees contributing to the completion of Federal awards for research must be recognized in the application of these principles. (g) The non-Federal entity may not earn or keep any profit resulting from Federal financial assistance, unless expressly authorized by the terms and conditions of the Federal award. See also § 200.307 Program income. General Provisions § 200.401 (2) Withholding advance payments otherwise due to the non-Federal entity; or (3) Other action permitted by Federal statute. (b) Except where otherwise provided by statutes or regulations, the Federal awarding agency will charge interest on an overdue debt in accordance with the Federal Claims Collection Standards (31 CFR Parts 900 through 999). The date from which interest is computed is not extended by litigation or the filing of any form of appeal. § 200.400 Policy guide. The application of these cost principles is based on the fundamental premises that: (a) The non-Federal entity is responsible for the efficient and effective administration of the Federal award through the application of sound management practices. (b) The non-Federal entity assumes responsibility for administering Federal funds in a manner consistent with underlying agreements, program objectives, and the terms and conditions of the Federal award. (c) The non-Federal entity, in recognition of its own unique combination of staff, facilities, and experience, has the primary responsibility for employing whatever form of sound organization and management techniques may be necessary in order to assure proper and efficient administration of the Federal award. (d) The application of these cost principles should require no significant changes in the internal accounting policies and practices of the nonFederal entity. However, the accounting practices of the non-Federal entity must be consistent with these cost principles and support the accumulation of costs as required by the principles, and must provide for adequate documentation to support costs charged to the Federal award. (e) In reviewing, negotiating and approving cost allocation plans or indirect cost proposals, the cognizant agency for indirect costs should generally assure that the non-Federal entity is applying these cost accounting principles on a consistent basis during their review and negotiation of indirect cost proposals. Where wide variations exist in the treatment of a given cost item by the non-Federal entity, the reasonableness and equity of such treatments should be fully considered. PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 Application. (a) General. These principles must be used in determining the allowable costs of work performed by the non-Federal entity under Federal awards. These principles also must be used by the nonFederal entity as a guide in the pricing of fixed-price contracts and subcontracts where costs are used in determining the appropriate price. The principles do not apply to: (1) Arrangements under which Federal financing is in the form of loans, scholarships, fellowships, traineeships, or other fixed amounts based on such items as education allowance or published tuition rates and fees. (2) For IHEs, capitation awards, which are awards based on case counts or number of beneficiaries according to the terms and conditions of the Federal award. (3) Fixed amount awards. See also Subpart A—Acronyms and Definitions, §§ 200.45 Fixed amount awards and 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts. (4) Federal awards to hospitals (see Appendix IX to Part 200—Hospital Cost Principles). (5) Other awards under which the non-Federal entity is not required to account to the Federal government for actual costs incurred. (b) Federal Contract. Where a Federal contract awarded to a non-Federal entity is subject to the Cost Accounting Standards (CAS), it incorporates the applicable CAS clauses, Standards, and CAS administration requirements per the 48 CFR Chapter 99 and 48 CFR Part 30 (FAR Part 30). CAS applies directly to the CAS-covered contract and the Cost Accounting Standards at 48 CFR Parts 9904 or 9905 takes precedence over the cost principles in this Subpart E—Cost Principles of this Part with respect to the allocation of costs. When a contract with a non-Federal entity is subject to full CAS coverage, the allowability of certain costs under the E:\FR\FM\26DER3.SGM 26DER3 78640 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations cost principles will be affected by the allocation provisions of the Cost Accounting Standards (e.g., CAS 414— 48 CFR 9904.414, Cost of Money as an Element of the Cost of Facilities Capital, and CAS 417—48 CFR 9904.417, Cost of Money as an Element of the Cost of Capital Assets Under Construction), apply rather the allowability provisions of § 200.449 Interest. In complying with those requirements, the non-Federal entity’s application of cost accounting practices for estimating, accumulating, and reporting costs for other Federal awards and other cost objectives under the CAS-covered contract still must be consistent with its cost accounting practices for the CAS-covered contracts. In all cases, only one set of accounting records needs to be maintained for the allocation of costs by the non-Federal entity. (c) Exemptions. Some nonprofit organizations, because of their size and nature of operations, can be considered to be similar to for-profit entities for purpose of applicability of cost principles. Such nonprofit organizations must operate under Federal cost principles applicable to for-profit entities located at 48 CFR 31.2. A listing of these organizations is contained in Appendix VIII to Part 200—Nonprofit Organizations Exempted From Subpart E—Cost Principles of this Part. Other organizations, as approved by the cognizant agency for indirect costs, may be added from time to time. Basic Considerations § 200.402 Composition of costs. Total cost. The total cost of a Federal award is the sum of the allowable direct and allocable indirect costs less any applicable credits. tkelley on DSK3SPTVN1PROD with RULES3 § 200.403 costs. Factors affecting allowability of Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this Part. (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federallyfinanced program in either the current or a prior period. See also § 200.306 Cost sharing or matching paragraph (b). (g) Be adequately documented. See also §§ 200.300 Statutory and national policy requirements through 200.309 Period of performance of this Part. § 200.404 Reasonable costs. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded. In determining reasonableness of a given cost, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the nonFederal entity or the proper and efficient performance of the Federal award. (b) The restraints or requirements imposed by such factors as: sound business practices; arm’s-length bargaining; Federal, state and other laws and regulations; and terms and conditions of the Federal award. (c) Market prices for comparable goods or services for the geographic area. (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal government. (e) Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost. § 200.405 Allocable costs. (a) A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. This standard is met if the cost: (1) Is incurred specifically for the Federal award; PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 (2) Benefits both the Federal award and other work of the non-Federal entity and can be distributed in proportions that may be approximated using reasonable methods; and (3) Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award in accordance with the principles in this subpart. (b) All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. (c) Any cost allocable to a particular Federal award under the principles provided for in this Part may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons. However, this prohibition would not preclude the non-Federal entity from shifting costs that are allowable under two or more Federal awards in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards. (d) Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. Where the purchase of equipment or other capital asset is specifically authorized under a Federal award, the costs are assignable to the Federal award regardless of the use that may be made of the equipment or other capital asset involved when no longer needed for the purpose for which it was originally required. See also §§ 200.310 Insurance coverage through 200.316 Property trust relationship and 200.439 Equipment and other capital expenditures. (e) If the contract is subject to CAS, costs must be allocated to the contract pursuant to the Cost Accounting Standards. To the extent that CAS is applicable, the allocation of costs in accordance with CAS takes precedence over the allocation provisions in this Part. § 200.406 Applicable credits. (a) Applicable credits refer to those receipts or reduction-of-expenditure- E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations type transactions that offset or reduce expense items allocable to the Federal award as direct or indirect (F&A) costs. Examples of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the non-Federal entity relate to allowable costs, they must be credited to the Federal award either as a cost reduction or cash refund, as appropriate. (b) In some instances, the amounts received from the Federal government to finance activities or service operations of the non-Federal entity should be treated as applicable credits. Specifically, the concept of netting such credit items (including any amounts used to meet cost sharing or matching requirements) should be recognized in determining the rates or amounts to be charged to the Federal award. (See §§ 200.436 Depreciation and 200.468 Specialized service facilities, for areas of potential application in the matter of Federal financing of activities.) tkelley on DSK3SPTVN1PROD with RULES3 § 200.407 Prior written approval (prior approval). Under any given Federal award, the reasonableness and allocability of certain items of costs may be difficult to determine. In order to avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs. Prior written approval should include the timeframe or scope of the agreement. The absence of prior written approval on any element of cost will not, in itself, affect the reasonableness or allocability of that element, unless prior approval is specifically required for allowability as described under certain circumstances in the following sections of this Part: (a) § 200.201 Use of grant agreements (including fixed amount awards), cooperative agreements, and contracts, paragraph (b)(5); (b) § 200.306 Cost sharing or matching; (c) § 200.307 Program income; (d) § 200.308 Revision of budget and program plans; (e) § 200.332 Fixed amount subawards; (f) § 200.413 Direct costs, paragraph (c); (g) § 200.430 Compensation—personal services, paragraph (h); VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (h) § 200.431 Compensation—fringe benefits; (i) § 200.438 Entertainment costs; (j) § 200.439 Equipment and other capital expenditures; (k) § 200.440 Exchange rates; (l) § 200.441 Fines, penalties, damages and other settlements; (m) § 200.442 Fund raising and investment management costs; (n) § 200.445 Goods or services for personal use; (o) § 200.447 Insurance and indemnification; (p) § 200.454 Memberships, subscriptions, and professional activity costs, paragraph (c); (q) § 200.455 Organization costs; (r) § 200.456 Participant support costs; (s) § 200.458 Pre-award costs; (t) § 200.462 Rearrangement and reconversion costs; (u) § 200.467 Selling and marketing costs; and (v) § 200.474 Travel costs. § 200.408 costs. Limitation on allowance of The Federal award may be subject to statutory requirements that limit the allowability of costs. When the maximum amount allowable under a limitation is less than the total amount determined in accordance with the principles in this Part, the amount not recoverable under the Federal award may not be charged to the Federal award. § 200.409 Special considerations. In addition to the basic considerations regarding the allowability of costs highlighted in this subtitle, other subtitles in this Part describe special considerations and requirements applicable to states, local governments, Indian tribes, and IHEs. In addition, certain provisions among the items of cost in this subpart, are only applicable to certain types of non-Federal entities, as specified in the following sections: (a) Direct and Indirect (F&A) Costs (§§ 200.412 Classification of costs through 200.415 Required certifications) of this subpart; (b) Special Considerations for States, Local Governments and Indian Tribes (§§ 200.416 Cost allocation plans and indirect cost proposals and 200.417 Interagency service) of this subpart; and (c) Special Considerations for Institutions of Higher Education (§§ 200.418 Costs incurred by states and local governments and 200.419 Cost accounting standards and disclosure statement) of this subpart. § 200.410 Collection of unallowable costs. Payments made for costs determined to be unallowable by either the Federal PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 78641 awarding agency, cognizant agency for indirect costs, or pass-through entity, either as direct or indirect costs, must be refunded (including interest) to the Federal government in accordance with instructions from the Federal agency that determined the costs are unallowable unless Federal statute or regulation directs otherwise. See also Subpart D—Post Federal Award Requirements of this Part, §§ 200.300 Statutory and national policy requirements through 200.309 Period of performance. § 200.411 Adjustment of previously negotiated indirect (F&A) cost rates containing unallowable costs. (a) Negotiated indirect (F&A) cost rates based on a proposal later found to have included costs that: (1) Are unallowable as specified by Federal statutes, regulations or the terms and conditions of a Federal award; or (2) Are unallowable because they are not allocable to the Federal award(s), must be adjusted, or a refund must be made, in accordance with the requirements of this section. These adjustments or refunds are designed to correct the proposals used to establish the rates and do not constitute a reopening of the rate negotiation. The adjustments or refunds will be made regardless of the type of rate negotiated (predetermined, final, fixed, or provisional). (b) For rates covering a future fiscal year of the non-Federal entity, the unallowable costs will be removed from the indirect (F&A) cost pools and the rates appropriately adjusted. (c) For rates covering a past period, the Federal share of the unallowable costs will be computed for each year involved and a cash refund (including interest chargeable in accordance with applicable regulations) will be made to the Federal government. If cash refunds are made for past periods covered by provisional or fixed rates, appropriate adjustments will be made when the rates are finalized to avoid duplicate recovery of the unallowable costs by the Federal government. (d) For rates covering the current period, either a rate adjustment or a refund, as described in paragraphs (b) and (c) of this section, must be required by the cognizant agency for indirect costs. The choice of method must be at the discretion of the cognizant agency for indirect costs, based on its judgment as to which method would be most practical. (e) The amount or proportion of unallowable costs included in each year’s rate will be assumed to be the same as the amount or proportion of E:\FR\FM\26DER3.SGM 26DER3 78642 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations unallowable costs included in the base year proposal used to establish the rate. Direct and Indirect (F&A) Costs § 200.412 Classification of costs. There is no universal rule for classifying certain costs as either direct or indirect (F&A) under every accounting system. A cost may be direct with respect to some specific service or function, but indirect with respect to the Federal award or other final cost objective. Therefore, it is essential that each item of cost incurred for the same purpose be treated consistently in like circumstances either as a direct or an indirect (F&A) cost in order to avoid possible double-charging of Federal awards. Guidelines for determining direct and indirect (F&A) costs charged to Federal awards are provided in this subpart. tkelley on DSK3SPTVN1PROD with RULES3 § 200.413 Direct costs. (a) General. Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs. See also § 200.405 Allocable costs. (b) Application to Federal awards. Identification with the Federal award rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect (F&A) costs of Federal awards. Typical costs charged directly to a Federal award are the compensation of employees who work on that award, their related fringe benefit costs, the costs of materials and other items of expense incurred for the Federal award. If directly related to a specific award, certain costs that otherwise would be treated as indirect costs may also include extraordinary utility consumption, the cost of materials supplied from stock or services rendered by specialized facilities or other institutional service operations. (c) The salaries of administrative and clerical staff should normally be treated as indirect (F&A) costs. Direct charging of these costs may be appropriate only if all of the following conditions are met: (1) Administrative or clerical services are integral to a project or activity; (2) Individuals involved can be specifically identified with the project or activity; (3) Such costs are explicitly included in the budget or have the prior written VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 approval of the Federal awarding agency; and (4) The costs are not also recovered as indirect costs. (d) Minor items. Any direct cost of minor amount may be treated as an indirect (F&A) cost for reasons of practicality where such accounting treatment for that item of cost is consistently applied to all Federal and non-Federal cost objectives. (e) The costs of certain activities are not allowable as charges to Federal awards. However, even though these costs are unallowable for purposes of computing charges to Federal awards, they nonetheless must be treated as direct costs for purposes of determining indirect (F&A) cost rates and be allocated their equitable share of the non-Federal entity’s indirect costs if they represent activities which: (1) Include the salaries of personnel, (2) Occupy space, and (3) Benefit from the non-Federal entity’s indirect (F&A) costs. (f) For nonprofit organizations, the costs of activities performed by the nonFederal entity primarily as a service to members, clients, or the general public when significant and necessary to the non-Federal entity’s mission must be treated as direct costs whether or not allowable, and be allocated an equitable share of indirect (F&A) costs. Some examples of these types of activities include: (1) Maintenance of membership rolls, subscriptions, publications, and related functions. See also § 200.454 Memberships, subscriptions, and professional activity costs. (2) Providing services and information to members, legislative or administrative bodies, or the public. See also §§ 200.454 Memberships, subscriptions, and professional activity costs and 200.450 Lobbying. (3) Promotion, lobbying, and other forms of public relations. See also §§ 200.421 Advertising and public relations and 200.450 Lobbying. (4) Conferences except those held to conduct the general administration of the non-Federal entity. See also § 200.432 Conferences. (5) Maintenance, protection, and investment of special funds not used in operation of the non-Federal entity. (6) Administration of group benefits on behalf of members or clients, including life and hospital insurance, annuity or retirement plans, and financial aid. See also § 200.431 Compensation—fringe benefits. § 200.414 Indirect (F&A) costs. (a) Facilities and Administration Classification. For major IHEs and major PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 nonprofit organizations, indirect (F&A) costs must be classified within two broad categories: ‘‘Facilities’’ and ‘‘Administration.’’ ‘‘Facilities’’ is defined as depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses. ‘‘Administration’’ is defined as general administration and general expenses such as the director’s office, accounting, personnel and all other types of expenditures not listed specifically under one of the subcategories of ‘‘Facilities’’ (including cross allocations from other pools, where applicable). For nonprofit organizations, library expenses are included in the ‘‘Administration’’ category; for institutions of higher education, they are included in the ‘‘Facilities’’ category. Major IHEs are defined as those required to use the Standard Format for Submission as noted in Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) paragraph C. 11. Major nonprofit organizations are those which receive more than $10 million dollars in direct Federal funding. (b) Diversity of nonprofit organizations. Because of the diverse characteristics and accounting practices of nonprofit organizations, it is not possible to specify the types of cost which may be classified as indirect (F&A) cost in all situations. Identification with a Federal award rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect (F&A) costs of Federal awards. However, typical examples of indirect (F&A) cost for many nonprofit organizations may include depreciation on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting. (c) Federal Agency Acceptance of Negotiated Indirect Cost Rates. (See also § 200.306 Cost sharing or matching.) (1) The negotiated rates must be accepted by all Federal awarding agencies. A Federal awarding agency may use a rate different from the negotiated rate for a class of Federal awards or a single Federal award only when required by Federal statute or regulation, or when approved by a Federal awarding agency head or delegate based on documented E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations justification as described in paragraph (c)(3) of this section. (2) The Federal awarding agency head or delegate must notify OMB of any approved deviations. (3) The Federal awarding agency must implement, and make publicly available, the policies, procedures and general decision making criteria that their programs will follow to seek and justify deviations from negotiated rates. (4) As required under § 200.203 Notices of funding opportunities, the Federal awarding agency must include in the notice of funding opportunity the policies relating to indirect cost rate reimbursement, matching, or cost share as approved under paragraph (e)(1) of this section. As appropriate, the Federal agency should incorporate discussion of these policies into Federal awarding agency outreach activities with nonFederal entities prior to the posting of a notice of funding opportunity. (d) Pass-through entities are subject to the requirements in § 200.331 Requirements for pass-through entities, paragraph (a)(4). (e) Requirements for development and submission of indirect (F&A) cost rate proposals and cost allocation plans are contained in Appendices III–VII as follows: (1) Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for (2) Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations; (3) Appendix V to Part 200—State/ Local Government and Indian TribeWide Central Service Cost Allocation Plans; (4) Appendix VI to Part 200—Public Assistance Cost Allocation Plans; and (5) Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals. (f) In addition to the procedures outlined in the appendices in paragraph (e) of this section, any non-Federal entity that has never received a negotiated indirect cost rate, except for those non-Federal entities described in Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals, paragraph (d)(1)(B) may elect to charge a de minimis rate of) 10% of modified total direct costs (MTDC) which may be used indefinitely. As described in § 200.403 Factors affecting allowability of costs, costs must be consistently charged as either indirect or direct costs, but may not be double charged or inconsistently charged as both. If chosen, this methodology once elected must be used consistently for all Federal awards until VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 such time as a non-Federal entity chooses to negotiate for a rate, which the non-Federal entity may apply to do at any time. (g) Any non-Federal entity that has a federally negotiated indirect cost rate may apply for a one-time extension of a current negotiated indirect cost rates for a period of up to four years. This extension will be subject to the review and approval of the cognizant agency for indirect costs. If an extension is granted the non-Federal entity may not request a rate review until the extension period ends. At the end of the 4-year extension, the non-Federal entity must re-apply to negotiate a rate. § 200.415 Required certifications. Required certifications include: (a) To assure that expenditures are proper and in accordance with the terms and conditions of the Federal award and approved project budgets, the annual and final fiscal reports or vouchers requesting payment under the agreements must include a certification, signed by an official who is authorized to legally bind the non-Federal entity, which reads as follows: ‘‘By signing this report, I certify to the best of my knowledge and belief that the report is true, complete, and accurate, and the expenditures, disbursements and cash receipts are for the purposes and objectives set forth in the terms and conditions of the Federal award. I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil or administrative penalties for fraud, false statements, false claims or otherwise. (U.S. Code Title 18, Section 1001 and Title 31, Sections 3729–3730 and 3801–3812).’’ (b) Certification of cost allocation plan or indirect (F&A) cost rate proposal. Each cost allocation plan or indirect (F&A) cost rate proposal must comply with the following: (1) A proposal to establish a cost allocation plan or an indirect (F&A) cost rate, whether submitted to a Federal cognizant agency for indirect costs or maintained on file by the non-Federal entity, must be certified by the nonFederal entity using the Certificate of Cost Allocation Plan or Certificate of Indirect Costs as set forth in Appendices III through VII. The certificate must be signed on behalf of the non-Federal entity by an individual at a level no lower than vice president or chief financial officer of the non-Federal entity that submits the proposal. (2) Unless the non-Federal entity has elected the option under § 200.414 Indirect (F&A) costs, paragraph (f), the Federal government may either disallow PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 78643 all indirect (F&A) costs or unilaterally establish such a plan or rate when the non-Federal entity fails to submit a certified proposal for establishing such a plan or rate in accordance with the requirements. Such a plan or rate may be based upon audited historical data or such other data that have been furnished to the cognizant agency for indirect costs and for which it can be demonstrated that all unallowable costs have been excluded. When a cost allocation plan or indirect cost rate is unilaterally established by the Federal government because the non-Federal entity failed to submit a certified proposal, the plan or rate established will be set to ensure that potentially unallowable costs will not be reimbursed. (c) Certifications by non-profit organizations as appropriate that they did not meet the definition of a major corporation as defined in § 200.414 Indirect (F&A) costs, paragraph (a). (d) See also § 200.450 Lobbying for another required certification. Special Considerations for States, Local Governments and Indian Tribes § 200.416 Cost allocation plans and indirect cost proposals. (a) For states, local governments and Indian tribes, certain services, such as motor pools, computer centers, purchasing, accounting, etc., are provided to operating agencies on a centralized basis. Since Federal awards are performed within the individual operating agencies, there needs to be a process whereby these central service costs can be identified and assigned to benefitted activities on a reasonable and consistent basis. The central service cost allocation plan provides that process. (b) Individual operating agencies (governmental department or agency), normally charge Federal awards for indirect costs through an indirect cost rate. A separate indirect cost rate(s) proposal for each operating agency is usually necessary to claim indirect costs under Federal awards. Indirect costs include: (1) The indirect costs originating in each department or agency of the governmental unit carrying out Federal awards and (2) The costs of central governmental services distributed through the central service cost allocation plan and not otherwise treated as direct costs. (c) The requirements for development and submission of cost allocation plans (for central service costs and public assistance programs) and indirect cost rate proposals are contained in Appendices IV, V and VI to this part. E:\FR\FM\26DER3.SGM 26DER3 78644 § 200.417 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Interagency service. The cost of services provided by one agency to another within the governmental unit may include allowable direct costs of the service plus a pro-rated share of indirect costs. A standard indirect cost allowance equal to ten percent of the direct salary and wage cost of providing the service (excluding overtime, shift premiums, and fringe benefits) may be used in lieu of determining the actual indirect costs of the service. These services do not include centralized services included in central service cost allocation plans as described in Appendix V to Part 200— State/Local Government and Indian Tribe- Wide Central Service Cost Allocation Plans. Special Considerations For Institutions Of Higher Education § 200.418 Costs incurred by states and local government Costs incurred or paid by a state or local government on behalf of its IHEs for fringe benefit programs, such as pension costs and FICA and any other costs specifically incurred on behalf of, and in direct benefit to, the IHEs, are allowable costs of such IHEs whether or not these costs are recorded in the accounting records of the institutions, subject to the following: (a) The costs meet the requirements of §§ 200.402 Composition of costs through 200.411 Adjustment of previously negotiated indirect (F&A) cost rates containing unallowable costs, of this subpart; (b) The costs are properly supported by approved cost allocation plans in accordance with applicable Federal cost accounting principles in this Part; and (c) The costs are not otherwise borne directly or indirectly by the Federal government. tkelley on DSK3SPTVN1PROD with RULES3 § 200.419 Cost accounting standards and disclosure statement. (a) An IHE that receives aggregate Federal awards totaling $50 million or more in Federal awards subject to this Part in its most recently completed fiscal year must comply with the Cost Accounting Standards Board’s cost accounting standards located at 48 CFR 9905.501, 9905.502, 9905.505, and 9905.506. CAS-covered contracts awarded to the IHEs are subject to the CAS requirements at 48 CFR 9900 through 9999 and 48 CFR Part 30 (FAR Part 30). (b) Disclosure statement. An IHE that receives aggregate Federal awards totaling $50 million or more subject to this Part during its most recently completed fiscal year must disclose their cost accounting practices by filing VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 a Disclosure Statement (DS–2), which is reproduced in Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs). With the approval of the cognizant agency for indirect costs, an IHE may meet the DS–2 submission by submitting the DS–2 for each business unit that received $50 million or more in Federal awards. (1) The DS–2 must be submitted to the cognizant agency for indirect costs with a copy to the IHE’s cognizant agency for audit. (2) An IHE is responsible for maintaining an accurate DS–2 and complying with disclosed cost accounting practices. An IHE must file amendments to the DS–2 to the cognizant agency for indirect costs six months in advance of a disclosed practices being changed to comply with a new or modified standard, or when practices are changed for other reasons. An IHE may proceed with implementing the change only if it has not been notified by the Federal cognizant agency for indirect costs that either a longer period will be needed for review or there are concerns with the potential change within the six months period. Amendments of a DS–2 may be submitted at any time. Resubmission of a complete, updated DS–2 is discouraged except when there are extensive changes to disclosed practices. (3) Cost and funding adjustments. Cost adjustments must be made by the cognizant agency for indirect costs if an IHE fails to comply with the cost policies in this Part or fails to consistently follow its established or disclosed cost accounting practices when estimating, accumulating or reporting the costs of Federal awards, and the aggregate cost impact on Federal awards is material. The cost adjustment must normally be made on an aggregate basis for all affected Federal awards through an adjustment of the IHE’s future F&A costs rates or other means considered appropriate by the cognizant agency for indirect costs. Under the terms of CAS covered contracts, adjustments in the amount of funding provided may also be required when the estimated proposal costs were not determined in accordance with established cost accounting practices. (4) Overpayments. Excess amounts paid in the aggregate by the Federal government under Federal awards due to a noncompliant cost accounting practice used to estimate, accumulate, or report costs must be credited or refunded, as deemed appropriate by the cognizant agency for indirect costs. PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 Interest applicable to the excess amounts paid in the aggregate during the period of noncompliance must also be determined and collected in accordance with applicable Federal agency regulations. (5) Compliant cost accounting practice changes. Changes from one compliant cost accounting practice to another compliant practice that are approved by the cognizant agency for indirect costs may require cost adjustments if the change has a material effect on Federal awards and the changes are deemed appropriate by the cognizant agency for indirect costs. (6) Responsibilities. The cognizant agency for indirect cost must: (i) Determine cost adjustments for all Federal awards in the aggregate on behalf of the Federal Government. Actions of the cognizant agency for indirect cost in making cost adjustment determinations must be coordinated with all affected Federal awarding agencies to the extent necessary. (ii) Prescribe guidelines and establish internal procedures to promptly determine on behalf of the Federal Government that a DS–2 adequately discloses the IHE’s cost accounting practices and that the disclosed practices are compliant with applicable CAS and the requirements of this Part. (iii) Distribute to all affected Federal awarding agencies any DS–2 determination of adequacy or noncompliance. General Provisions for Selected Items of Cost § 200.420 Considerations for selected items of cost. This section provides principles to be applied in establishing the allowability of certain items involved in determining cost, in addition to the requirements of Subtitle II. Basic Considerations of this subpart. These principles apply whether or not a particular item of cost is properly treated as direct cost or indirect (F&A) cost. Failure to mention a particular item of cost is not intended to imply that it is either allowable or unallowable; rather, determination as to allowability in each case should be based on the treatment provided for similar or related items of cost, and based on the principles described in §§ 200.402 Composition of costs through 200.411 Adjustment of previously negotiated indirect (F&A) cost rates containing unallowable costs. In case of a discrepancy between the provisions of a specific Federal award and the provisions below, the Federal award governs. Criteria outlined in § 200.403 Factors affecting allowability of costs E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations must be applied in determining allowability. See also § 200.102 Exceptions. tkelley on DSK3SPTVN1PROD with RULES3 § 200.421 Advertising and public relations. (a) The term advertising costs means the costs of advertising media and corollary administrative costs. Advertising media include magazines, newspapers, radio and television, direct mail, exhibits, electronic or computer transmittals, and the like. (b) The only allowable advertising costs are those which are solely for: (1) The recruitment of personnel required by the non-Federal entity for performance of a Federal award (See also § 200.463 Recruiting costs); (2) The procurement of goods and services for the performance of a Federal award; (3) The disposal of scrap or surplus materials acquired in the performance of a Federal award except when nonFederal entities are reimbursed for disposal costs at a predetermined amount; or (4) Program outreach and other specific purposes necessary to meet the requirements of the Federal award. (c) The term ‘‘public relations’’ includes community relations and means those activities dedicated to maintaining the image of the nonFederal entity or maintaining or promoting understanding and favorable relations with the community or public at large or any segment of the public. (d) The only allowable public relations costs are: (1) Costs specifically required by the Federal award; (2) Costs of communicating with the public and press pertaining to specific activities or accomplishments which result from performance of the Federal award (these costs are considered necessary as part of the outreach effort for the Federal award); or (3) Costs of conducting general liaison with news media and government public relations officers, to the extent that such activities are limited to communication and liaison necessary to keep the public informed on matters of public concern, such as notices of funding opportunities, financial matters, etc. (e) Unallowable advertising and public relations costs include the following: (1) All advertising and public relations costs other than as specified in paragraphs (b) and (d) of this section; (2) Costs of meetings, conventions, convocations, or other events related to other activities of the entity (see also § 200.432 Conferences), including: (i) Costs of displays, demonstrations, and exhibits; VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (ii) Costs of meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events; and (iii) Salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations, and providing briefings; (3) Costs of promotional items and memorabilia, including models, gifts, and souvenirs; (4) Costs of advertising and public relations designed solely to promote the non-Federal entity. § 200.422 Advisory councils. Costs incurred by advisory councils or committees are unallowable unless authorized by statute, the Federal awarding agency or as an indirect cost where allocable to Federal awards. See § 200.444 General costs of government, applicable to states, local governments and Indian tribes. § 200.423 Alcoholic beverages. Costs of alcoholic beverages are unallowable. § 200.424 Alumni/ae activities. Costs incurred by IHEs for, or in support of, alumni/ae activities are unallowable. § 200.425 Audit services. (a) A reasonably proportionate share of the costs of audits required by, and performed in accordance with, the Single Audit Act Amendments of 1996 (31 U.S.C. 7501–7507), as implemented by requirements of this Part, are allowable. However, the following audit costs are unallowable: (1) Any costs when audits required by the Single Audit Act and Subpart F— Audit Requirements of this Part have not been conducted or have been conducted but not in accordance therewith; and (2) Any costs of auditing a nonFederal entity that is exempted from having an audit conducted under the Single Audit Act and Subpart F—Audit Requirements of this Part because its expenditures under Federal awards are less than $750,000 during the nonFederal entity’s fiscal year. (b) The costs of a financial statement audit of a non-Federal entity that does not currently have a Federal award may be included in the indirect cost pool for a cost allocation plan or indirect cost proposal. (c) Pass-through entities may charge Federal awards for the cost of agreedupon-procedures engagements to monitor subrecipients (in accordance with Subpart D—Post Federal Award Requirements of this Part, §§ 200.330 PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 78645 Subrecipient and contractor determinations through 200.332 Fixed Amount Subawards) who are exempted from the requirements of the Single Audit Act and Subpart F—Audit Requirements of this Part. This cost is allowable only if the agreed-uponprocedures engagements are: (1) Conducted in accordance with GAGAS attestation standards; (2) Paid for and arranged by the passthrough entity; and (3) Limited in scope to one or more of the following types of compliance requirements: activities allowed or unallowed; allowable costs/cost principles; eligibility; and reporting. § 200.426 Bad debts. Bad debts (debts which have been determined to be uncollectable), including losses (whether actual or estimated) arising from uncollectable accounts and other claims, are unallowable. Related collection costs, and related legal costs, arising from such debts after they have been determined to be uncollectable are also unallowable. See also § 200.428 Collections of improper payments. § 200.427 Bonding costs. (a) Bonding costs arise when the Federal awarding agency requires assurance against financial loss to itself or others by reason of the act or default of the non-Federal entity. They arise also in instances where the non-Federal entity requires similar assurance, including: bonds as bid, performance, payment, advance payment, infringement, and fidelity bonds for employees and officials. (b) Costs of bonding required pursuant to the terms and conditions of the Federal award are allowable. (c) Costs of bonding required by the non-Federal entity in the general conduct of its operations are allowable as an indirect cost to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances. § 200.428 Collections of improper payments. The costs incurred by a non-Federal entity to recover improper payments are allowable as either direct or indirect costs, as appropriate. Amounts collected may be used by the non-Federal entity in accordance with cash management standards set forth in § 200.305 Payment. § 200.429 Commencement and convocation costs. For IHEs, costs incurred for commencements and convocations are E:\FR\FM\26DER3.SGM 26DER3 78646 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations unallowable, except as provided for in Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs), paragraph (B)(9) Student Administration and Services, as student activity costs. tkelley on DSK3SPTVN1PROD with RULES3 § 200.430 services. Compensation—personal (a) General. Compensation for personal services includes all remuneration, paid currently or accrued, for services of employees rendered during the period of performance under the Federal award, including but not necessarily limited to wages and salaries. Compensation for personal services may also include fringe benefits which are addressed in § 200.431 Compensation—fringe benefits. Costs of compensation are allowable to the extent that they satisfy the specific requirements of this Part, and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the established written policy of the nonFederal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i) of this section, Standards for Documentation of Personnel Expenses, when applicable. (b) Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. In cases where the kinds of employees required for Federal awards are not found in the other activities of the non-Federal entity, compensation will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor market in which the nonFederal entity competes for the kind of employees involved. (c) Professional activities outside the non-Federal entity. Unless an arrangement is specifically authorized by a Federal awarding agency, a nonFederal entity must follow its written non-Federal entity-wide policies and practices concerning the permissible extent of professional services that can be provided outside the non-Federal entity for non-organizational compensation. Where such non-Federal entity-wide written policies do not exist or do not adequately define the permissible extent of consulting or other VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 non-organizational activities undertaken for extra outside pay, the Federal government may require that the effort of professional staff working on Federal awards be allocated between: (1) Non-Federal entity activities, and (2) Non-organizational professional activities. If the Federal awarding agency considers the extent of nonorganizational professional effort excessive or inconsistent with the conflicts-of-interest terms and conditions of the Federal award, appropriate arrangements governing compensation will be negotiated on a case-by-case basis. (d) Unallowable costs. (1) Costs which are unallowable under other sections of these principles must not be allowable under this section solely on the basis that they constitute personnel compensation. (2) The allowable compensation for certain employees is subject to a ceiling in accordance with statute. For the amount of the ceiling for costreimbursement contracts, the covered compensation subject to the ceiling, the covered employees, and other relevant provisions, see 10 U.S.C. 2324(e)(1)(P), and 41 U.S.C. 1127 and 4304(a)(16). For other types of Federal awards, other statutory ceilings may apply. (e) Special considerations. Special considerations in determining allowability of compensation will be given to any change in a non-Federal entity’s compensation policy resulting in a substantial increase in its employees’ level of compensation (particularly when the change was concurrent with an increase in the ratio of Federal awards to other activities) or any change in the treatment of allowability of specific types of compensation due to changes in Federal policy. (f) Incentive compensation. Incentive compensation to employees based on cost reduction, or efficient performance, suggestion awards, safety awards, etc., is allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued pursuant to an agreement entered into in good faith between the non-Federal entity and the employees before the services were rendered, or pursuant to an established plan followed by the non-Federal entity so consistently as to imply, in effect, an agreement to make such payment. (g) Nonprofit organizations. For compensation to members of nonprofit organizations, trustees, directors, associates, officers, or the immediate families thereof, determination should be made that such compensation is reasonable for the actual personal PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 services rendered rather than a distribution of earnings in excess of costs. This may include director’s and executive committee member’s fees, incentive awards, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost-of-living differentials. (h) Institutions of higher education (IHEs). (1) Certain conditions require special consideration and possible limitations in determining allowable personnel compensation costs under Federal awards. Among such conditions are the following: (i) Allowable activities. Charges to Federal awards may include reasonable amounts for activities contributing and directly related to work under an agreement, such as delivering special lectures about specific aspects of the ongoing activity, writing reports and articles, developing and maintaining protocols (human, animals, etc.), managing substances/chemicals, managing and securing project-specific data, coordinating research subjects, participating in appropriate seminars, consulting with colleagues and graduate students, and attending meetings and conferences. (ii) Incidental activities. Incidental activities for which supplemental compensation is allowable under written institutional policy (at a rate not to exceed institutional base salary) need not be included in the records described in paragraph (h)(9) of this section to directly charge payments of incidental activities, such activities must either be specifically provided for in the Federal award budget or receive prior written approval by the Federal awarding agency. (2) Salary basis. Charges for work performed on Federal awards by faculty members during the academic year are allowable at the IBS rate. Except as noted in paragraph (h)(1)(ii) of this section, in no event will charges to Federal awards, irrespective of the basis of computation, exceed the proportionate share of the IBS for that period. This principle applies to all members of faculty at an institution. IBS is defined as the annual compensation paid by an IHE for an individual’s appointment, whether that individual’s time is spent on research, instruction, administration, or other activities. IBS excludes any income that an individual earns outside of duties performed for the IHE. Unless there is prior approval by the Federal awarding agency, charges of a faculty member’s salary to a Federal award must not exceed the proportionate share of the IBS for the E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations period during which the faculty member worked on the award. (3) Intra-Institution of Higher Education (IHE) consulting. Intra-IHE consulting by faculty is assumed to be undertaken as an IHE obligation requiring no compensation in addition to IBS. However, in unusual cases where consultation is across departmental lines or involves a separate or remote operation, and the work performed by the faculty member is in addition to his or her regular responsibilities, any charges for such work representing additional compensation above IBS are allowable provided that such consulting arrangements are specifically provided for in the Federal award or approved in writing by the Federal awarding agency. (4) Extra Service Pay normally represents overload compensation, subject to institutional compensation policies for services above and beyond IBS. Where extra service pay is a result of Intra-IHE consulting, it is subject to the same requirements of paragraph (b) above. It is allowable if all of the following conditions are met: (i) The non-Federal entity establishes consistent written policies which apply uniformly to all faculty members, not just those working on Federal awards. (ii) The non-Federal entity establishes a consistent written definition of work covered by IBS which is specific enough to determine conclusively when work beyond that level has occurred. This may be described in appointment letters or other documentations. (iii) The supplementation amount paid is commensurate with the IBS rate of pay and the amount of additional work performed. See paragraph (h)(2) of this section. (iv) The salaries, as supplemented, fall within the salary structure and pay ranges established by and documented in writing or otherwise applicable to the non-Federal entity. (v) The total salaries charged to Federal awards including extra service pay are subject to the Standards of Documentation as described in paragraph (i) of this section. (5) Periods outside the academic year. (i) Except as specified for teaching activity in paragraph (h)(5)(ii) of this section, charges for work performed by faculty members on Federal awards during periods not included in the base salary period will be at a rate not in excess of the IBS. (ii) Charges for teaching activities performed by faculty members on Federal awards during periods not included in IBS period will be based on the normal written policy of the IHE governing compensation to faculty VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 members for teaching assignments during such periods. (6) Part-time faculty. Charges for work performed on Federal awards by faculty members having only part-time appointments will be determined at a rate not in excess of that regularly paid for part-time assignments. (7) Sabbatical leave costs. Rules for sabbatical leave are as follow: (i) Costs of leaves of absence by employees for performance of graduate work or sabbatical study, travel, or research are allowable provided the IHE has a uniform written policy on sabbatical leave for persons engaged in instruction and persons engaged in research. Such costs will be allocated on an equitable basis among all related activities of the IHE. (ii) Where sabbatical leave is included in fringe benefits for which a cost is determined for assessment as a direct charge, the aggregate amount of such assessments applicable to all work of the institution during the base period must be reasonable in relation to the IHE’s actual experience under its sabbatical leave policy. (8) Salary rates for non-faculty members. Non-faculty full-time professional personnel may also earn ‘‘extra service pay’’ in accordance with the non-Federal entity’s written policy and consistent with paragraph (h)(1)(i) of this section. (i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS); (iv) Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy; (v) Comply with the established accounting policies and practices of the non-Federal entity (See paragraph (h)(1)(ii) above for treatment of incidental work for IHEs.); and (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 78647 the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: (A) The system for establishing the estimates produces reasonable approximations of the activity actually performed; (B) Significant changes in the corresponding work activity (as defined by the non-Federal entity’s written policies) are identified and entered into the records in a timely manner. Short term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and (C) The non-Federal entity’s system of internal controls includes processes to review after-the-fact interim charges made to a Federal awards based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. (ix) Because practices vary as to the activity constituting a full workload (for IHEs, IBS), records may reflect categories of activities expressed as a percentage distribution of total activities. (x) It is recognized that teaching, research, service, and administration are often inextricably intermingled in an academic setting. When recording salaries and wages charged to Federal awards for IHEs, a precise assessment of factors that contribute to costs is therefore not always feasible, nor is it expected. (2) For records which meet the standards required in paragraph (i)(1) of this section, the non-Federal entity will not be required to provide additional support or documentation for the work performed, other than that referenced in paragraph (i)(3) of this section. (3) In accordance with Department of Labor regulations implementing the Fair Labor Standards Act (FLSA) (29 CFR Part 516), charges for the salaries and wages of nonexempt employees, in addition to the supporting documentation described in this section, must also be supported by records indicating the total number of hours worked each day. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78648 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (4) Salaries and wages of employees used in meeting cost sharing or matching requirements on Federal awards must be supported in the same manner as salaries and wages claimed for reimbursement from Federal awards. (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (1) if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, ‘‘rolling’’ time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. (ii) Allocating charges for the sampled employees’ supervisors, clerical and support staffs, based on the results of the sampled employees, will be acceptable. (iii) Less than full compliance with the statistical sampling standards noted in subsection (5)(i) may be accepted by the cognizant agency for indirect costs if it concludes that the amounts to be allocated to Federal awards will be minimal, or if it concludes that the system proposed by the non-Federal entity will result in lower costs to Federal awards than a system which complies with the standards. (6) Cognizant agencies for indirect costs are encouraged to approve alternative proposals based on outcomes and milestones for program performance where these are clearly documented. Where approved by the Federal cognizant agency for indirect costs, these plans are acceptable as an alternative to the requirements of paragraph (i)(1) of this section. (7) For Federal awards of similar purpose activity or instances of approved blended funding, a nonFederal entity may submit performance plans that incorporate funds from multiple Federal awards and account for VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 their combined use based on performance-oriented metrics, provided that such plans are approved in advance by all involved Federal awarding agencies. In these instances, the nonFederal entity must submit a request for waiver of the requirements based on documentation that describes the method of charging costs, relates the charging of costs to the specific activity that is applicable to all fund sources, and is based on quantifiable measures of the activity in relation to time charged. (8) For a non-Federal entity where the records do not meet the standards described in this section, the Federal government may require personnel activity reports, including prescribed certifications, or equivalent documentation that support the records as required in this section. § 200.431 Compensation—fringe benefits. (a) Fringe benefits are allowances and services provided by employers to their employees as compensation in addition to regular salaries and wages. Fringe benefits include, but are not limited to, the costs of leave (vacation, familyrelated, sick or military), employee insurance, pensions, and unemployment benefit plans. Except as provided elsewhere in these principles, the costs of fringe benefits are allowable provided that the benefits are reasonable and are required by law, non-Federal entity-employee agreement, or an established policy of the non-Federal entity. (b) Leave. The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met: (1) They are provided under established written leave policies; (2) The costs are equitably allocated to all related activities, including Federal awards; and, (3) The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the non-Federal entity or specified grouping of employees. (i) When a non-Federal entity uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable as indirect costs in the year of payment. (ii) The accrual basis may be only used for those types of leave for which a liability as defined by GAAP exists PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 when the leave is earned. When a nonFederal entity uses the accrual basis of accounting, allowable leave costs are the lesser of the amount accrued or funded. (c) The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in § 200.447 Insurance and indemnification); pension plan costs (see paragraph (i) of this section); and other similar benefits are allowable, provided such benefits are granted under established written policies. Such benefits, must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. (d) Fringe benefits may be assigned to cost objectives by identifying specific benefits to specific individual employees or by allocating on the basis of entity-wide salaries and wages of the employees receiving the benefits. When the allocation method is used, separate allocations must be made to selective groupings of employees, unless the nonFederal entity demonstrates that costs in relationship to salaries and wages do not differ significantly for different groups of employees. (e) Insurance. See also § 200.447 Insurance and indemnification, paragraphs (d)(1) and (2). (1) Provisions for a reserve under a self-insurance program for unemployment compensation or workers’ compensation are allowable to the extent that the provisions represent reasonable estimates of the liabilities for such compensation, and the types of coverage, extent of coverage, and rates and premiums would have been allowable had insurance been purchased to cover the risks. However, provisions for self-insured liabilities which do not become payable for more than one year after the provision is made must not exceed the present value of the liability. (2) Costs of insurance on the lives of trustees, officers, or other employees holding positions of similar responsibility are allowable only to the extent that the insurance represents additional compensation. The costs of such insurance when the non-Federal entity is named as beneficiary are unallowable. (3) Actual claims paid to or on behalf of employees or former employees for E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations workers’ compensation, unemployment compensation, severance pay, and similar employee benefits (e.g., postretirement health benefits), are allowable in the year of payment provided that the non-Federal entity follows a consistent costing policy and they are allocated as indirect costs. (f) Automobiles. That portion of automobile costs furnished by the entity that relates to personal use by employees (including transportation to and from work) is unallowable as fringe benefit or indirect (F&A) costs regardless of whether the cost is reported as taxable income to the employees. (g) Pension Plan Costs. Pension plan costs which are incurred in accordance with the established policies of the nonFederal entity are allowable, provided that: (1) Such policies meet the test of reasonableness. (2) The methods of cost allocation are not discriminatory. (3) For entities using accrual based accounting, the cost assigned to each fiscal year is determined in accordance with GAAP. (4) The costs assigned to a given fiscal year are funded for all plan participants within six months after the end of that year. However, increases to normal and past service pension costs caused by a delay in funding the actuarial liability beyond 30 calendar days after each quarter of the year to which such costs are assignable are unallowable. NonFederal entity may elect to follow the ‘‘Cost Accounting Standard for Composition and Measurement of Pension Costs’’ (48 CFR 9904.412). (5) Pension plan termination insurance premiums paid pursuant to the Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. 1301–1461) are allowable. Late payment charges on such premiums are unallowable. Excise taxes on accumulated funding deficiencies and other penalties imposed under ERISA are unallowable. (6) Pension plan costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with established written policies of the non-Federal entity. (i) For pension plans financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries. (ii) Pension costs calculated using an actuarial cost-based method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of that year. Costs funded after the six month VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 period (or a later period agreed to by the cognizant agency for indirect costs) are allowable in the year funded. The cognizant agency for indirect costs may agree to an extension of the six month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal government and related Federal reimbursement and the non-Federal entity’s contribution to the pension fund. Adjustments may be made by cash refund or other equitable procedures to compensate the Federal government for the time value of Federal reimbursements in excess of contributions to the pension fund. (iii) Amounts funded by the nonFederal entity in excess of the actuarially determined amount for a fiscal year may be used as the nonFederal entity’s contribution in future periods. (iv) When a non-Federal entity converts to an acceptable actuarial cost method, as defined by GAAP, and funds pension costs in accordance with this method, the unfunded liability at the time of conversion is allowable if amortized over a period of years in accordance with GAAP. (v) The Federal government must receive an equitable share of any previously allowed pension costs (including earnings thereon) which revert or inure to the non-Federal entity in the form of a refund, withdrawal, or other credit. (h) Post-Retirement Health. Postretirement health plans (PRHP) refers to costs of health insurance or health services not included in a pension plan covered by paragraph (g) of this section for retirees and their spouses, dependents, and survivors. PRHP costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with established written policies of the non-Federal entity. (1) For PRHP financed on a pay-asyou-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries. (2) PRHP costs calculated using an actuarial cost method recognized by GAAP are allowable if they are funded for that year within six months after the end of that year. Costs funded after the six month period (or a later period agreed to by the cognizant agency) are allowable in the year funded. The Federal cognizant agency for indirect costs may agree to an extension of the six month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal government and related Federal reimbursements and the non-Federal PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 78649 entity’s contributions to the PRHP fund. Adjustments may be made by cash refund, reduction in current year’s PRHP costs, or other equitable procedures to compensate the Federal government for the time value of Federal reimbursements in excess of contributions to the PRHP fund. (3) Amounts funded in excess of the actuarially determined amount for a fiscal year may be used as the Federal government’s contribution in a future period. (4) When a non-Federal entity converts to an acceptable actuarial cost method and funds PRHP costs in accordance with this method, the initial unfunded liability attributable to prior years is allowable if amortized over a period of years in accordance with GAAP, or, if no such GAAP period exists, over a period negotiated with the cognizant agency for indirect costs. (5) To be allowable in the current year, the PRHP costs must be paid either to: (i) An insurer or other benefit provider as current year costs or premiums, or (ii) An insurer or trustee to maintain a trust fund or reserve for the sole purpose of providing post-retirement benefits to retirees and other beneficiaries. (6) The Federal government must receive an equitable share of any amounts of previously allowed postretirement benefit costs (including earnings thereon) which revert or inure to the entity in the form of a refund, withdrawal, or other credit. (i) Severance Pay. (1) Severance pay, also commonly referred to as dismissal wages, is a payment in addition to regular salaries and wages, by non-Federal entities to workers whose employment is being terminated. Costs of severance pay are allowable only to the extent that in each case, it is required by (a) law, (b) employer-employee agreement, (c) established policy that constitutes, in effect, an implied agreement on the nonFederal entity’s part, or (d) circumstances of the particular employment. (2) Costs of severance payments are divided into two categories as follows: (i) Actual normal turnover severance payments must be allocated to all activities; or, where the non-Federal entity provides for a reserve for normal severances, such method will be acceptable if the charge to current operations is reasonable in light of payments actually made for normal severances over a representative past period, and if amounts charged are E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78650 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations allocated to all activities of the nonFederal entity. (ii) Measurement of costs of abnormal or mass severance pay by means of an accrual will not achieve equity to both parties. Thus, accruals for this purpose are not allowable. However, the Federal government recognizes its obligation to participate, to the extent of its fair share, in any specific payment. Prior approval by the Federal awarding agency or cognizant agency for indirect cost, as appropriate, is required. (3) Costs incurred in certain severance pay packages which are in an amount in excess of the normal severance pay paid by the non-Federal entity to an employee upon termination of employment and are paid to the employee contingent upon a change in management control over, or ownership of, the non-Federal entity’s assets, are unallowable. (4) Severance payments to foreign nationals employed by the non-Federal entity outside the United States, to the extent that the amount exceeds the customary or prevailing practices for the non-Federal entity in the United States, are unallowable, unless they are necessary for the performance of Federal programs and approved by the Federal awarding agency. (5) Severance payments to foreign nationals employed by the non-Federal entity outside the United States due to the termination of the foreign national as a result of the closing of, or curtailment of activities by, the nonFederal entity in that country, are unallowable, unless they are necessary for the performance of Federal programs and approved by the Federal awarding agency. (j)(1) For IHEs only. Fringe benefits in the form of tuition or remission of tuition for individual employees are allowable, provided such benefits are granted in accordance with established non-Federal entity policies, and are distributed to all non-Federal entity activities on an equitable basis. Tuition benefits for family members other than the employee are unallowable. (2) Fringe benefits in the form of tuition or remission of tuition for individual employees not employed by IHEs are limited to the tax-free amount allowed per section 127 of the Internal Revenue Code as amended. (3) IHEs may offer employees tuition waivers or tuition reductions for undergraduate education under IRC Section 117(d) as amended, provided that the benefit does not discriminate in favor of highly compensated employees. Federal reimbursement of tuition or remission of tuition is also limited to the institution for which the employee VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 works. See § 200.466 Scholarships and student aid costs, for treatment of tuition remission provided to students. (k) For IHEs whose costs are paid by state or local governments, fringe benefit programs (such as pension costs and FICA) and any other benefits costs specifically incurred on behalf of, and in direct benefit to, the non-Federal entity, are allowable costs of such nonFederal entities whether or not these costs are recorded in the accounting records of the non-Federal entities, subject to the following: (1) The costs meet the requirements of Basic Considerations in §§ 200.402 Composition of costs through 200.411 Adjustment of previously negotiated indirect (F&A) cost rates containing unallowable costs of this subpart; (2) The costs are properly supported by approved cost allocation plans in accordance with applicable Federal cost accounting principles; and (3) The costs are not otherwise borne directly or indirectly by the Federal government. § 200.432 Conferences. A conference is defined as a meeting, retreat, seminar, symposium, workshop or event whose primary purpose is the dissemination of technical information beyond the non-Federal entity and is necessary and reasonable for successful performance under the Federal award. Allowable conference costs paid by the non-Federal entity as a sponsor or host of the conference may include rental of facilities, speakers’ fees, costs of meals and refreshments, local transportation, and other items incidental to such conferences unless further restricted by the terms and conditions of the Federal award. As needed, the costs of identifying, but not providing, locally available dependent-care resources are allowable. Conference hosts/sponsors must exercise discretion and judgment in ensuring that conference costs are appropriate, necessary and managed in a manner that minimizes costs to the Federal award. The Federal awarding agency may authorize exceptions where appropriate for programs including Indian tribes, children, and the elderly. See also §§ 200.438 Entertainment costs, 200.456 Participant support costs, 200.474 Travel costs, and 200.475 Trustees. § 200.433 Contingency provisions. (a) Contingency is that part of a budget estimate of future costs (typically of large construction projects, IT systems, or other items as approved by the Federal awarding agency) which is associated with possible events or conditions arising from causes the PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 precise outcome of which is indeterminable at the time of estimate, and that experience shows will likely result, in aggregate, in additional costs for the approved activity or project. Amounts for major project scope changes, unforeseen risks, or extraordinary events may not be included. (b) It is permissible for contingency amounts other than those excluded in paragraph (b)(1) of this section to be explicitly included in budget estimates, to the extent they are necessary to improve the precision of those estimates. Amounts must be estimated using broadly-accepted cost estimating methodologies, specified in the budget documentation of the Federal award, and accepted by the Federal awarding agency. As such, contingency amounts are to be included in the Federal award. In order for actual costs incurred to be allowable, they must comply with the cost principles and other requirements in this Part (see also §§ 200.300 Statutory and national policy requirements through 200.309 Period of performance of Subpart D of this Part and 200.403 Factors affecting allowability of costs); be necessary and reasonable for proper and efficient accomplishment of project or program objectives, and be verifiable from the non-Federal entity’s records. (c) Payments made by the Federal awarding agency to the non-Federal entity’s ‘‘contingency reserve’’ or any similar payment made for events the occurrence of which cannot be foretold with certainty as to the time or intensity, or with an assurance of their happening, are unallowable, except as noted in §§ 200.431 Compensation— fringe benefits regarding self-insurance, pensions, severance and post-retirement health costs and 200.447 Insurance and indemnification. § 200.434 Contributions and donations. (a) Costs of contributions and donations, including cash, property, and services, from the non-Federal entity to other entities, are unallowable. (b) The value of services and property donated to the non-Federal entity may not be charged to the Federal award either as a direct or indirect (F&A) cost. The value of donated services and property may be used to meet cost sharing or matching requirements (see § 200.306 Cost sharing or matching). Depreciation on donated assets is permitted in accordance with § 200.436 Depreciation, as long as the donated property is not counted towards cost sharing or matching requirements. (c) Services donated or volunteered to the non-Federal entity may be furnished E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations to a non-Federal entity by professional and technical personnel, consultants, and other skilled and unskilled labor. The value of these services is not allowable either as a direct or indirect cost. However, the value of donated services may be used to meet cost sharing or matching requirements in accordance with the provisions of § 200.306 Cost sharing or matching. (d) To the extent feasible, services donated to the non-Federal entity will be supported by the same methods used to support the allocability of regular personnel services. (e) The following provisions apply to nonprofit organizations. The value of services donated to the nonprofit organization utilized in the performance of a direct cost activity must be considered in the determination of the non-Federal entity’s indirect cost rate(s) and, accordingly, must be allocated a proportionate share of applicable indirect costs when the following circumstances exist: (1) The aggregate value of the services is material; (2) The services are supported by a significant amount of the indirect costs incurred by the non-Federal entity; (i) In those instances where there is no basis for determining the fair market value of the services rendered, the nonFederal entity and the cognizant agency for indirect costs must negotiate an appropriate allocation of indirect cost to the services. (ii) Where donated services directly benefit a project supported by the Federal award, the indirect costs allocated to the services will be considered as a part of the total costs of the project. Such indirect costs may be reimbursed under the Federal award or used to meet cost sharing or matching requirements. (f) Fair market value of donated services must be computed as described in § 200.306 Cost sharing or matching. (g) Personal Property and Use of Space. (1) Donated personal property and use of space may be furnished to a nonFederal entity. The value of the personal property and space is not reimbursable either as a direct or indirect cost. (2) The value of the donations may be used to meet cost sharing or matching share requirements under the conditions described in §§ 200.300 Statutory and national policy requirements through 200.309 Period of performance of Subpart D of this Part. The value of the donations must be determined in accordance with §§ 200.300 Statutory and national policy requirements through 200.309 Period of performance. Where donations are treated as indirect VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 costs, indirect cost rates will separate the value of the donations so that reimbursement will not be made. § 200.435 Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements. (a) Definitions for the purposes of this section. (1) Conviction means a judgment or conviction of a criminal offense by any court of competent jurisdiction, whether entered upon verdict or a plea, including a conviction due to a plea of nolo contendere. (2) Costs include the services of inhouse or private counsel, accountants, consultants, or others engaged to assist the non-Federal entity before, during, and after commencement of a judicial or administrative proceeding, that bear a direct relationship to the proceeding. (3) Fraud means: (i) Acts of fraud or corruption or attempts to defraud the Federal government or to corrupt its agents, (ii) Acts that constitute a cause for debarment or suspension (as specified in agency regulations), and (iii) Acts which violate the False Claims Act (31 U.S.C. 3729–3732) or the Anti-kickback Act (41 U.S.C. 1320a– 7b(b)). (4) Penalty does not include restitution, reimbursement, or compensatory damages. (5) Proceeding includes an investigation. (b) Costs. (1) Except as otherwise described herein, costs incurred in connection with any criminal, civil or administrative proceeding (including filing of a false certification) commenced by the Federal government, a state, local government, or foreign government, or joined by the Federal government (including a proceeding under the False Claims Act), against the non-Federal entity, (or commenced by third parties or a current or former employee of the non-Federal entity who submits a whistleblower complaint of reprisal in accordance with 10 U.S.C. 2409 or 41 U.S.C. 4712), are not allowable if the proceeding: (i) Relates to a violation of, or failure to comply with, a Federal, state, local or foreign statute, regulation or the terms and conditions of the Federal award, by the non-Federal entity (including its agents and employees); and (ii) Results in any of the following dispositions: (A) In a criminal proceeding, a conviction. (B) In a civil or administrative proceeding involving an allegation of fraud or similar misconduct, a PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 78651 determination of non-Federal entity liability. (C) In the case of any civil or administrative proceeding, the disallowance of costs or the imposition of a monetary penalty, or an order issued by the Federal awarding agency head or delegate to the non-Federal entity to take corrective action under 10 U.S.C. 2409 or 41 U.S.C. 4712. (D) A final decision by an appropriate Federal official to debar or suspend the non-Federal entity, to rescind or void a Federal award, or to terminate a Federal award for default by reason of a violation or failure to comply with a statute, regulation, or the terms and conditions of the Federal award. (E) A disposition by consent or compromise, if the action could have resulted in any of the dispositions described in paragraphs (b)(1)(ii)(A) through (D) of this section. (2) If more than one proceeding involves the same alleged misconduct, the costs of all such proceedings are unallowable if any results in one of the dispositions shown in paragraph (b) of this section. (c) If a proceeding referred to in paragraph (b) of this section is commenced by the Federal government and is resolved by consent or compromise pursuant to an agreement by the non-Federal entity and the Federal government, then the costs incurred may be allowed to the extent specifically provided in such agreement. (d) If a proceeding referred to in paragraph (b) of this section is commenced by a state, local or foreign government, the authorized Federal official may allow the costs incurred if such authorized official determines that the costs were incurred as a result of: (1) A specific term or condition of the Federal award, or (2) Specific written direction of an authorized official of the Federal awarding agency. (e) Costs incurred in connection with proceedings described in paragraph (b) of this section, which are not made unallowable by that subsection, may be allowed but only to the extent that: (1) The costs are reasonable and necessary in relation to the administration of the Federal award and activities required to deal with the proceeding and the underlying cause of action; (2) Payment of the reasonable, necessary, allocable and otherwise allowable costs incurred is not prohibited by any other provision(s) of the Federal award; (3) The costs are not recovered from the Federal Government or a third party, E:\FR\FM\26DER3.SGM 26DER3 78652 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations either directly as a result of the proceeding or otherwise; and, (4) An authorized Federal official must determine the percentage of costs allowed considering the complexity of litigation, generally accepted principles governing the award of legal fees in civil actions involving the United States, and such other factors as may be appropriate. Such percentage must not exceed 80 percent. However, if an agreement reached under paragraph (c) of this section has explicitly considered this 80 percent limitation and permitted a higher percentage, then the full amount of costs resulting from that agreement are allowable. (f) Costs incurred by the non-Federal entity in connection with the defense of suits brought by its employees or exemployees under section 2 of the Major Fraud Act of 1988 (18 U.S.C. 1031), including the cost of all relief necessary to make such employee whole, where the non-Federal entity was found liable or settled, are unallowable. (g) Costs of prosecution of claims against the Federal government, including appeals of final Federal agency decisions, are unallowable. (h) Costs of legal, accounting, and consultant services, and related costs, incurred in connection with patent infringement litigation, are unallowable unless otherwise provided for in the Federal award. (i) Costs which may be unallowable under this section, including directly associated costs, must be segregated and accounted for separately. During the pendency of any proceeding covered by paragraphs (b) and (f) of this section, the Federal government must generally withhold payment of such costs. However, if in its best interests, the Federal government may provide for conditional payment upon provision of adequate security, or other adequate assurance, and agreement to repay all unallowable costs, plus interest, if the costs are subsequently determined to be unallowable. tkelley on DSK3SPTVN1PROD with RULES3 § 200.436 Depreciation. (a) Depreciation is the method for allocating the cost of fixed assets to periods benefitting from asset use. The non-Federal entity may be compensated for the use of its buildings, capital improvements, equipment, and software projects capitalized in accordance with GAAP, provided that they are used, needed in the non-Federal entity’s activities, and properly allocated to Federal awards. Such compensation must be made by computing depreciation. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (b) The allocation for depreciation must be made in accordance with Appendices IV through VIII. (c) Depreciation is computed applying the following rules. The computation of depreciation must be based on the acquisition cost of the assets involved. For an asset donated to the non-Federal entity by a third party, its fair market value at the time of the donation must be considered as the acquisition cost. Such assets may be depreciated or claimed as matching but not both. For this purpose, the acquisition cost will exclude: (1) The cost of land; (2) Any portion of the cost of buildings and equipment borne by or donated by the Federal government, irrespective of where title was originally vested or where it is presently located; (3) Any portion of the cost of buildings and equipment contributed by or for the non-Federal entity, or where law or agreement prohibits recovery; and (4) Any asset acquired solely for the performance of a non-Federal award. (d) When computing depreciation charges, the following must be observed: (1) The period of useful service or useful life established in each case for usable capital assets must take into consideration such factors as type of construction, nature of the equipment, technological developments in the particular area, historical data, and the renewal and replacement policies followed for the individual items or classes of assets involved. (2) The depreciation method used to charge the cost of an asset (or group of assets) to accounting periods must reflect the pattern of consumption of the asset during its useful life. In the absence of clear evidence indicating that the expected consumption of the asset will be significantly greater in the early portions than in the later portions of its useful life, the straight-line method must be presumed to be the appropriate method. Depreciation methods once used may not be changed unless approved in advance by the cognizant agency. The depreciation methods used to calculate the depreciation amounts for indirect (F&A) rate purposes must be the same methods used by the nonFederal entity for its financial statements. (3) The entire building, including the shell and all components, may be treated as a single asset and depreciated over a single useful life. A building may also be divided into multiple components. Each component item may then be depreciated over its estimated useful life. The building components must be grouped into three general PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 components of a building: building shell (including construction and design costs), building services systems (e.g., elevators, HVAC, plumbing system and heating and air-conditioning system) and fixed equipment (e.g., sterilizers, casework, fume hoods, cold rooms and glassware/washers). In exceptional cases, a cognizant agency may authorize a non-Federal entity to use more than these three groupings. When a nonFederal entity elects to depreciate its buildings by its components, the same depreciation methods must be used for indirect (F&A) purposes and financial statements purposes, as described in paragraphs (d)(1) and (2) of this section. (4) No depreciation may be allowed on any assets that have outlived their depreciable lives. (5) Where the depreciation method is introduced to replace the use allowance method, depreciation must be computed as if the asset had been depreciated over its entire life (i.e., from the date the asset was acquired and ready for use to the date of disposal or withdrawal from service). The total amount of use allowance and depreciation for an asset (including imputed depreciation applicable to periods prior to the conversion from the use allowance method as well as depreciation after the conversion) may not exceed the total acquisition cost of the asset. (e) Charges for depreciation must be supported by adequate property records, and physical inventories must be taken at least once every two years to ensure that the assets exist and are usable, used, and needed. Statistical sampling techniques may be used in taking these inventories. In addition, adequate depreciation records showing the amount of depreciation taken each period must also be maintained. § 200.437 costs. Employee health and welfare (a) Costs incurred in accordance with the non-Federal entity’s documented policies for the improvement of working conditions, employer-employee relations, employee health, and employee performance are allowable. (b) Such costs will be equitably apportioned to all activities of the nonFederal entity. Income generated from any of these activities will be credited to the cost thereof unless such income has been irrevocably sent to employee welfare organizations. (c) Losses resulting from operating food services are allowable only if the non-Federal entity’s objective is to operate such services on a break-even basis. Losses sustained because of operating objectives other than the above are allowable only: E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (1) Where the non-Federal entity can demonstrate unusual circumstances; and (2) With the approval of the cognizant agency for indirect costs. § 200.438 Entertainment costs. Costs of entertainment, including amusement, diversion, and social activities and any associated costs are unallowable, except where specific costs that might otherwise be considered entertainment have a programmatic purpose and are authorized either in the approved budget for the Federal award or with prior written approval of the Federal awarding agency. § 200.440 tkelley on DSK3SPTVN1PROD with RULES3 § 200.439 Equipment and other capital expenditures. (a) See §§ 200.13 Capital expenditures, 200.33 Equipment, 200.89 Special purpose equipment, 200.48 General purpose equipment, 200.2 Acquisition cost, and 200.12 Capital assets. (b) The following rules of allowability must apply to equipment and other capital expenditures: (1) Capital expenditures for general purpose equipment, buildings, and land are unallowable as direct charges, except with the prior written approval of the Federal awarding agency or passthrough entity. (2) Capital expenditures for special purpose equipment are allowable as direct costs, provided that items with a unit cost of $5,000 or more have the prior written approval of the Federal awarding agency or pass-through entity. (3) Capital expenditures for improvements to land, buildings, or equipment which materially increase their value or useful life are unallowable as a direct cost except with the prior written approval of the Federal awarding agency, or pass-through entity. See § 200.436 Depreciation, for rules on the allowability of depreciation on buildings, capital improvements, and equipment. See also § 200.465 Rental costs of real property and equipment. (4) When approved as a direct charge pursuant to paragraphs (b)(1) through (3) of this section, capital expenditures will be charged in the period in which the expenditure is incurred, or as otherwise determined appropriate and negotiated with the Federal awarding agency. (5) The unamortized portion of any equipment written off as a result of a change in capitalization levels may be recovered by continuing to claim the otherwise allowable depreciation on the equipment, or by amortizing the amount to be written off over a period of years VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 negotiated with the Federal cognizant agency for indirect cost. (6) Cost of equipment disposal. If the non-Federal entity is instructed by the Federal awarding agency to otherwise dispose of or transfer the equipment the costs of such disposal or transfer are allowable. Exchange rates. (a) Cost increases for fluctuations in exchange rates are allowable costs subject to the availability of funding, and prior approval by the Federal awarding agency. The Federal awarding agency must however ensure that adequate funds are available to cover currency fluctuations in order to avoid a violation of the Anti-Deficiency Act. (b) The non-Federal entity is required to make reviews of local currency gains to determine the need for additional federal funding before the expiration date of the Federal award. Subsequent adjustments for currency increases may be allowable only when the non-Federal entity provides the Federal awarding agency with adequate source documentation from a commonly used source in effect at the time the expense was made, and to the extent that sufficient Federal funds are available. § 200.441 Fines, penalties, damages and other settlements. Costs resulting from non-Federal entity violations of, alleged violations of, or failure to comply with, Federal, state, tribal, local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award, or with prior written approval of the Federal awarding agency. See also § 200.435 Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements. § 200.442 Fund raising and investment management costs. (a) Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions are unallowable. Fund raising costs for the purposes of meeting the Federal program objectives are allowable with prior written approval from the Federal awarding agency. Proposal costs are covered in § 200.460 Proposal costs. (b) Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable except when associated with investments covering pension, selfinsurance, or other funds which include Federal participation allowed by this Part. PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 78653 (c) Costs related to the physical custody and control of monies and securities are allowable. (d) Both allowable and unallowable fund raising and investment activities must be allocated as an appropriate share of indirect costs under the conditions described in § 200.413 Direct costs. § 200.443 Gains and losses on disposition of depreciable assets. (a) Gains and losses on the sale, retirement, or other disposition of depreciable property must be included in the year in which they occur as credits or charges to the asset cost grouping(s) in which the property was included. The amount of the gain or loss to be included as a credit or charge to the appropriate asset cost grouping(s) is the difference between the amount realized on the property and the undepreciated basis of the property. (b) Gains and losses from the disposition of depreciable property must not be recognized as a separate credit or charge under the following conditions: (1) The gain or loss is processed through a depreciation account and is reflected in the depreciation allowable under §§ 200.436 Depreciation and 200.439 Equipment and other capital expenditures. (2) The property is given in exchange as part of the purchase price of a similar item and the gain or loss is taken into account in determining the depreciation cost basis of the new item. (3) A loss results from the failure to maintain permissible insurance, except as otherwise provided in § 46*200.447 Insurance and indemnification. (4) Compensation for the use of the property was provided through use allowances in lieu of depreciation. (5) Gains and losses arising from mass or extraordinary sales, retirements, or other dispositions must be considered on a case-by-case basis. (c) Gains or losses of any nature arising from the sale or exchange of property other than the property covered in paragraph (a) of this section, e.g., land, must be excluded in computing Federal award costs. (d) When assets acquired with Federal funds, in part or wholly, are disposed of, the distribution of the proceeds must be made in accordance with §§ 200.310 Insurance Coverage through 200.316 Property trust relationship. § 200.444 General costs of government. (a) For states, local governments, and Indian Tribes, the general costs of government are unallowable (except as provided in § 200.474 Travel costs). Unallowable costs include: E:\FR\FM\26DER3.SGM 26DER3 78654 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (1) Salaries and expenses of the Office of the Governor of a state or the chief executive of a local government or the chief executive of an Indian tribe; (2) Salaries and other expenses of a state legislature, tribal council, or similar local governmental body, such as a county supervisor, city council, school board, etc., whether incurred for purposes of legislation or executive direction; (3) Costs of the judicial branch of a government; (4) Costs of prosecutorial activities unless treated as a direct cost to a specific program if authorized by statute or regulation (however, this does not preclude the allowability of other legal activities of the Attorney General as described in § 200.435 Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements); and (5) Costs of other general types of government services normally provided to the general public, such as fire and police, unless provided for as a direct cost under a program statute or regulation. (b) For Indian tribes and Councils Of Governments (COGs) (see § 200.64 Local government), the portion of salaries and expenses directly attributable to managing and operating Federal programs by the chief executive and his or her staff is allowable. Up to 50% of these costs can be included in the indirect cost calculation without documentation. § 200.445 use. Goods or services for personal (a) Costs of goods or services for personal use of the non-Federal entity’s employees are unallowable regardless of whether the cost is reported as taxable income to the employees. (b) Costs of housing (e.g., depreciation, maintenance, utilities, furnishings, rent), housing allowances and personal living expenses are only allowable as direct costs regardless of whether reported as taxable income to the employees. In addition, to be allowable direct costs must be approved in advance by a Federal awarding agency. tkelley on DSK3SPTVN1PROD with RULES3 § 200.446 Idle facilities and idle capacity. (a) As used in this section the following terms have the meanings set forth in this section: (1) Facilities means land and buildings or any portion thereof, equipment individually or collectively, or any other tangible capital asset, wherever located, and whether owned or leased by the non-Federal entity. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (2) Idle facilities means completely unused facilities that are excess to the non-Federal entity’s current needs. (3) Idle capacity means the unused capacity of partially used facilities. It is the difference between: (i) That which a facility could achieve under 100 percent operating time on a one-shift basis less operating interruptions resulting from time lost for repairs, setups, unsatisfactory materials, and other normal delays and; (ii) The extent to which the facility was actually used to meet demands during the accounting period. A multishift basis should be used if it can be shown that this amount of usage would normally be expected for the type of facility involved. (4) Cost of idle facilities or idle capacity means costs such as maintenance, repair, housing, rent, and other related costs, e.g., insurance, interest, and depreciation. These costs could include the costs of idle public safety emergency facilities, telecommunications, or information technology system capacity that is built to withstand major fluctuations in load, e.g., consolidated data centers. (b) The costs of idle facilities are unallowable except to the extent that: (1) They are necessary to meet workload requirements which may fluctuate and are allocated appropriately to all benefiting programs; or (2) Although not necessary to meet fluctuations in workload, they were necessary when acquired and are now idle because of changes in program requirements, efforts to achieve more economical operations, reorganization, termination, or other causes which could not have been reasonably foreseen. Under the exception stated in this subsection, costs of idle facilities are allowable for a reasonable period of time, ordinarily not to exceed one year, depending on the initiative taken to use, lease, or dispose of such facilities. (c) The costs of idle capacity are normal costs of doing business and are a factor in the normal fluctuations of usage or indirect cost rates from period to period. Such costs are allowable, provided that the capacity is reasonably anticipated to be necessary to carry out the purpose of the Federal award or was originally reasonable and is not subject to reduction or elimination by use on other Federal awards, subletting, renting, or sale, in accordance with sound business, economic, or security practices. Widespread idle capacity throughout an entire facility or among a group of assets having substantially the same function may be considered idle facilities. PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 § 200.447 Insurance and indemnification. (a) Costs of insurance required or approved and maintained, pursuant to the Federal award, are allowable. (b) Costs of other insurance in connection with the general conduct of activities are allowable subject to the following limitations: (1) Types and extent and cost of coverage are in accordance with the non-Federal entity’s policy and sound business practice. (2) Costs of insurance or of contributions to any reserve covering the risk of loss of, or damage to, Federal government property are unallowable except to the extent that the Federal awarding agency has specifically required or approved such costs. (3) Costs allowed for business interruption or other similar insurance must exclude coverage of management fees. (4) Costs of insurance on the lives of trustees, officers, or other employees holding positions of similar responsibilities are allowable only to the extent that the insurance represents additional compensation (see § 200.431 Compensation—fringe benefits). The cost of such insurance when the nonFederal entity is identified as the beneficiary is unallowable. (5) Insurance against defects. Costs of insurance with respect to any costs incurred to correct defects in the nonFederal entity’s materials or workmanship are unallowable. (6) Medical liability (malpractice) insurance. Medical liability insurance is an allowable cost of Federal research programs only to the extent that the Federal research programs involve human subjects or training of participants in research techniques. Medical liability insurance costs must be treated as a direct cost and must be assigned to individual projects based on the manner in which the insurer allocates the risk to the population covered by the insurance. (c) Actual losses which could have been covered by permissible insurance (through a self-insurance program or otherwise) are unallowable, unless expressly provided for in the Federal award. However, costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound management practice, and minor losses not covered by insurance, such as spoilage, breakage, and disappearance of small hand tools, which occur in the ordinary course of operations, are allowable. (d) Contributions to a reserve for certain self-insurance programs including workers’ compensation, unemployment compensation, and E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations severance pay are allowable subject to the following provisions: (1) The type of coverage and the extent of coverage and the rates and premiums would have been allowed had insurance (including reinsurance) been purchased to cover the risks. However, provision for known or reasonably estimated self-insured liabilities, which do not become payable for more than one year after the provision is made, must not exceed the discounted present value of the liability. The rate used for discounting the liability must be determined by giving consideration to such factors as the nonFederal entity’s settlement rate for those liabilities and its investment rate of return. (2) Earnings or investment income on reserves must be credited to those reserves. (3)(i) Contributions to reserves must be based on sound actuarial principles using historical experience and reasonable assumptions. Reserve levels must be analyzed and updated at least biennially for each major risk being insured and take into account any reinsurance, coinsurance, etc. Reserve levels related to employee-related coverages will normally be limited to the value of claims: (A) Submitted and adjudicated but not paid; (B) Submitted but not adjudicated; and (C) Incurred but not submitted. (ii) Reserve levels in excess of the amounts based on the above must be identified and justified in the cost allocation plan or indirect cost rate proposal. (4) Accounting records, actuarial studies, and cost allocations (or billings) must recognize any significant differences due to types of insured risk and losses generated by the various insured activities or agencies of the nonFederal entity. If individual departments or agencies of the nonFederal entity experience significantly different levels of claims for a particular risk, those differences are to be recognized by the use of separate allocations or other techniques resulting in an equitable allocation. (5) Whenever funds are transferred from a self-insurance reserve to other accounts (e.g., general fund or unrestricted account), refunds must be made to the Federal government for its share of funds transferred, including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for indirect cost, claims collection regulations. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (e) Insurance refunds must be credited against insurance costs in the year the refund is received. (f) Indemnification includes securing the non-Federal entity against liabilities to third persons and other losses not compensated by insurance or otherwise. The Federal government is obligated to indemnify the non-Federal entity only to the extent expressly provided for in the Federal award, except as provided in paragraph (c) of this section. § 200.448 Intellectual property. (a) Patent costs. (1) The following costs related to securing patents and copyrights are allowable: (i) Costs of preparing disclosures, reports, and other documents required by the Federal award, and of searching the art to the extent necessary to make such disclosures; (ii) Costs of preparing documents and any other patent costs in connection with the filing and prosecution of a United States patent application where title or royalty-free license is required by the Federal government to be conveyed to the Federal government; and (iii) General counseling services relating to patent and copyright matters, such as advice on patent and copyright laws, regulations, clauses, and employee intellectual property agreements (See also § 200.459 Professional service costs). (2) The following costs related to securing patents and copyrights are unallowable: (i) Costs of preparing disclosures, reports, and other documents, and of searching the art to make disclosures not required by the Federal award; (ii) Costs in connection with filing and prosecuting any foreign patent application, or any United States patent application, where the Federal award does not require conveying title or a royalty-free license to the Federal government. (b) Royalties and other costs for use of patents and copyrights. (1) Royalties on a patent or copyright or amortization of the cost of acquiring by purchase a copyright, patent, or rights thereto, necessary for the proper performance of the Federal award are allowable unless: (i) The Federal government already has a license or the right to free use of the patent or copyright. (ii) The patent or copyright has been adjudicated to be invalid, or has been administratively determined to be invalid. (iii) The patent or copyright is considered to be unenforceable. PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 78655 (iv) The patent or copyright is expired. (2) Special care should be exercised in determining reasonableness where the royalties may have been arrived at as a result of less-than-arm’s-length bargaining, such as: (i) Royalties paid to persons, including corporations, affiliated with the non-Federal entity. (ii) Royalties paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Federal award would be made. (iii) Royalties paid under an agreement entered into after a Federal award is made to a non-Federal entity. (3) In any case involving a patent or copyright formerly owned by the nonFederal entity, the amount of royalty allowed should not exceed the cost which would have been allowed had the non-Federal entity retained title thereto. § 200.449 Interest. (a) General. Costs incurred for interest on borrowed capital, temporary use of endowment funds, or the use of the nonFederal entity’s own funds, however represented, are unallowable. Financing costs (including interest) to acquire, construct, or replace capital assets are allowable, subject to the conditions in this section. (b)(1) Capital assets is defined as noted in § 200.12 Capital assets. An asset cost includes (as applicable) acquisition costs, construction costs, and other costs capitalized in accordance with GAAP. (2) For non-Federal entity fiscal years beginning on or after January 1, 2016, intangible assets include patents and computer software. For software development projects, only interest attributable to the portion of the project costs capitalized in accordance with GAAP is allowable. (c) Conditions for all non-Federal entities. (1) The non-Federal entity uses the capital assets in support of Federal awards; (2) The allowable asset costs to acquire facilities and equipment are limited to a fair market value available to the non-Federal entity from an unrelated (arm’s length) third party. (3) The non-Federal entity obtains the financing via an arm’s-length transaction (that is, a transaction with an unrelated third party); or claims reimbursement of actual interest cost at a rate available via such a transaction. (4) The non-Federal entity limits claims for Federal reimbursement of interest costs to the least expensive alternative. For example, a capital lease E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78656 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations may be determined less costly than purchasing through debt financing, in which case reimbursement must be limited to the amount of interest determined if leasing had been used. (5) The non-Federal entity expenses or capitalizes allowable interest cost in accordance with GAAP. (6) Earnings generated by the investment of borrowed funds pending their disbursement for the asset costs are used to offset the current period’s allowable interest cost, whether that cost is expensed or capitalized. Earnings subject to being reported to the Federal Internal Revenue Service under arbitrage requirements are excludable. (7) The following conditions must apply to debt arrangements over $1 million to purchase or construct facilities, unless the non-Federal entity makes an initial equity contribution to the purchase of 25 percent or more. For this purpose, ‘‘initial equity contribution’’ means the amount or value of contributions made by the nonFederal entity for the acquisition of facilities prior to occupancy. (i) The non-Federal entity must reduce claims for reimbursement of interest cost by an amount equal to imputed interest earnings on excess cash flow attributable to the portion of the facility used for Federal awards. (ii) The non-Federal entity must impute interest on excess cash flow as follows: (A) Annually, the non-Federal entity must prepare a cumulative (from the inception of the project) report of monthly cash inflows and outflows, regardless of the funding source. For this purpose, inflows consist of Federal reimbursement for depreciation, amortization of capitalized construction interest, and annual interest cost. Outflows consist of initial equity contributions, debt principal payments (less the pro-rata share attributable to the cost of land), and interest payments. (B) To compute monthly cash inflows and outflows, the non-Federal entity must divide the annual amounts determined in step (i) by the number of months in the year (usually 12) that the building is in service. (C) For any month in which cumulative cash inflows exceed cumulative outflows, interest must be calculated on the excess inflows for that month and be treated as a reduction to allowable interest cost. The rate of interest to be used must be the threemonth Treasury bill closing rate as of the last business day of that month. (8) Interest attributable to a fully depreciated asset is unallowable. (d) Additional conditions for states, local governments and Indian tribes. For VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 costs to be allowable, the non-Federal entity must have incurred the interest costs for buildings after October 1, 1980, or for land and equipment after September 1, 1995. (1) The requirement to offset interest earned on borrowed funds against current allowable interest cost (paragraph (c)(5), above) also applies to earnings on debt service reserve funds. (2) The non-Federal entity will negotiate the amount of allowable interest cost related to the acquisition of facilities with asset costs of $1 million or more, as outlined in paragraph (c)(7) of this section. For this purpose, a nonFederal entity must consider only cash inflows and outflows attributable to that portion of the real property used for Federal awards. (e) Additional conditions for IHEs. For costs to be allowable, the IHE must have incurred the interest costs after September 23, 1982, in connection with acquisitions of capital assets that occurred after that date. (f) Additional condition for nonprofit organizations. For costs to be allowable, the nonprofit organization incurred the interest costs after September 29, 1995, in connection with acquisitions of capital assets that occurred after that date. (g) The interest allowability provisions of this section do not apply to a nonprofit organization subject to ‘‘full coverage’’ under the Cost Accounting Standards (CAS), as defined at 48 CFR 9903.201–2(a). The nonFederal entity’s Federal awards are instead subject to CAS 414 (48 CFR 9904.414), ‘‘Cost of Money as an Element of the Cost of Facilities Capital’’, and CAS 417 (48 CFR 9904.417), ‘‘Cost of Money as an Element of the Cost of Capital Assets Under Construction’’. § 200.450 Lobbying. (a) The cost of certain influencing activities associated with obtaining grants, contracts, cooperative agreements, or loans is an unallowable cost. Lobbying with respect to certain grants, contracts, cooperative agreements, and loans is governed by relevant statutes, including among others, the provisions of 31 U.S.C. 1352, as well as the common rule, ‘‘New Restrictions on Lobbying’’ published at 55 FR 6736 (February 26, 1990), including definitions, and the Office of Management and Budget ‘‘Governmentwide Guidance for New Restrictions on Lobbying’’ and notices published at 54 FR 52306 (December 20, 1989), 55 FR 24540 (June 15, 1990), 57 FR 1772 (January 15, 1992), and 61 FR 1412 (January 19, 1996). PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 (b) Executive lobbying costs. Costs incurred in attempting to improperly influence either directly or indirectly, an employee or officer of the executive branch of the Federal government to give consideration or to act regarding a Federal award or a regulatory matter are unallowable. Improper influence means any influence that induces or tends to induce a Federal employee or officer to give consideration or to act regarding a Federal award or regulatory matter on any basis other than the merits of the matter. (c) In addition to the above, the following restrictions are applicable to nonprofit organizations and IHEs: (1) Costs associated with the following activities are unallowable: (i) Attempts to influence the outcomes of any Federal, state, or local election, referendum, initiative, or similar procedure, through in-kind or cash contributions, endorsements, publicity, or similar activity; (ii) Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections in the United States; (iii) Any attempt to influence: (A)The introduction of Federal or state legislation; (B) The enactment or modification of any pending Federal or state legislation through communication with any member or employee of the Congress or state legislature (including efforts to influence state or local officials to engage in similar lobbying activity); (C) The enactment or modification of any pending Federal or state legislation by preparing, distributing, or using publicity or propaganda, or by urging members of the general public, or any segment thereof, to contribute to or participate in any mass demonstration, march, rally, fund raising drive, lobbying campaign or letter writing or telephone campaign; or (D) Any government official or employee in connection with a decision to sign or veto enrolled legislation; (iv) Legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying. (2) The following activities are excepted from the coverage of paragraph (c)(1) of this section: (i) Technical and factual presentations on topics directly related to the E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations performance of a grant, contract, or other agreement (through hearing testimony, statements, or letters to the Congress or a state legislature, or subdivision, member, or cognizant staff member thereof), in response to a documented request (including a Congressional Record notice requesting testimony or statements for the record at a regularly scheduled hearing) made by the non-Federal entity’s member of congress, legislative body or a subdivision, or a cognizant staff member thereof, provided such information is readily obtainable and can be readily put in deliverable form, and further provided that costs under this section for travel, lodging or meals are unallowable unless incurred to offer testimony at a regularly scheduled Congressional hearing pursuant to a written request for such presentation made by the Chairman or Ranking Minority Member of the Committee or Subcommittee conducting such hearings; (ii) Any lobbying made unallowable by paragraph (c)(1)(iii) of this section to influence state legislation in order to directly reduce the cost, or to avoid material impairment of the non-Federal entity’s authority to perform the grant, contract, or other agreement; or (iii) Any activity specifically authorized by statute to be undertaken with funds from the Federal award. (iv) Any activity excepted from the definitions of ‘‘lobbying’’ or ‘‘influencing legislation’’ by the Internal Revenue Code provisions that require nonprofit organizations to limit their participation in direct and ‘‘grass roots’’ lobbying activities in order to retain their charitable deduction status and avoid punitive excise taxes, I.R.C. §§ 501(c)(3), 501(h), 4911(a), including: (A) Nonpartisan analysis, study, or research reports; (B) Examinations and discussions of broad social, economic, and similar problems; and (C) Information provided upon request by a legislator for technical advice and assistance, as defined by I.R.C. § 4911(d)(2) and 26 CFR 56.4911– 2(c)(1)–(c)(3). (v) When a non-Federal entity seeks reimbursement for indirect (F&A) costs, total lobbying costs must be separately identified in the indirect (F&A) cost rate proposal, and thereafter treated as other unallowable activity costs in accordance with the procedures of § 200.413 Direct costs. (vi) The non-Federal entity must submit as part of its annual indirect (F&A) cost rate proposal a certification that the requirements and standards of this section have been complied with. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (See also § 200.415 Required certifications.) (vii)(A) Time logs, calendars, or similar records are not required to be created for purposes of complying with the record keeping requirements in § 200.302 Financial management with respect to lobbying costs during any particular calendar month when: (1) The employee engages in lobbying (as defined in paragraphs (c)(1) and (c)(2) of this section) 25 percent or less of the employee’s compensated hours of employment during that calendar month; and (2) Within the preceding five-year period, the non-Federal entity has not materially misstated allowable or unallowable costs of any nature, including legislative lobbying costs. (B) When conditions in paragraph (c)(2)(vii)(A)(1) and (2) of this section are met, non-Federal entities are not required to establish records to support the allowability of claimed costs in addition to records already required or maintained. Also, when conditions in paragraphs (c)(2)(vii)(A)(1) and (2) of this section are met, the absence of time logs, calendars, or similar records will not serve as a basis for disallowing costs by contesting estimates of lobbying time spent by employees during a calendar month. (viii) The Federal awarding agency must establish procedures for resolving in advance, in consultation with OMB, any significant questions or disagreements concerning the interpretation or application of this section. Any such advance resolutions must be binding in any subsequent settlements, audits, or investigations with respect to that grant or contract for purposes of interpretation of this Part, provided, however, that this must not be construed to prevent a contractor or non-Federal entity from contesting the lawfulness of such a determination. § 200.451 Losses on other awards or contracts. Any excess of costs over income under any other award or contract of any nature is unallowable. This includes, but is not limited to, the nonFederal entity’s contributed portion by reason of cost-sharing agreements or any under-recoveries through negotiation of flat amounts for indirect (F&A) costs. Also, any excess of costs over authorized funding levels transferred from any award or contract to another award or contract is unallowable. All losses are not allowable indirect (F&A) costs and are required to be included in the appropriate indirect cost rate base for allocation of indirect costs. PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 § 200.452 78657 Maintenance and repair costs. Costs incurred for utilities, insurance, security, necessary maintenance, janitorial services, repair, or upkeep of buildings and equipment (including Federal property unless otherwise provided for) which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable. Costs incurred for improvements which add to the permanent value of the buildings and equipment or appreciably prolong their intended life must be treated as capital expenditures (see § 200.439 Equipment and other capital expenditures). These costs are only allowable to the extent not paid through rental or other agreements. § 200.453 Materials and supplies costs, including costs of computing devices. (a) Costs incurred for materials, supplies, and fabricated parts necessary to carry out a Federal award are allowable. (b) Purchased materials and supplies must be charged at their actual prices, net of applicable credits. Withdrawals from general stores or stockrooms should be charged at their actual net cost under any recognized method of pricing inventory withdrawals, consistently applied. Incoming transportation charges are a proper part of materials and supplies costs. (c) Materials and supplies used for the performance of a Federal award may be charged as direct costs. In the specific case of computing devices, charging as direct costs is allowable for devices that are essential and allocable, but not solely dedicated, to the performance of a Federal award. (d) Where federally-donated or furnished materials are used in performing the Federal award, such materials will be used without charge. § 200.454 Memberships, subscriptions, and professional activity costs. (a) Costs of the non-Federal entity’s membership in business, technical, and professional organizations are allowable. (b) Costs of the non-Federal entity’s subscriptions to business, professional, and technical periodicals are allowable. (c) Costs of membership in any civic or community organization are allowable with prior approval by the Federal awarding agency or passthrough entity. (d) Costs of membership in any country club or social or dining club or organization are unallowable. (e) Costs of membership in organizations whose primary purpose is E:\FR\FM\26DER3.SGM 26DER3 78658 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations lobbying are unallowable. See also § 200.450 Lobbying. § 200.455 Organization costs. Costs such as incorporation fees, brokers’ fees, fees to promoters, organizers or management consultants, attorneys, accountants, or investment counselor, whether or not employees of the non-Federal entity in connection with establishment or reorganization of an organization, are unallowable except with prior approval of the Federal awarding agency. § 200.456 Participant support costs. Participant support costs as defined in § 200.75 Participant support costs are allowable with the prior approval of the Federal awarding agency. § 200.457 Plant and security costs. Necessary and reasonable expenses incurred for routine and security to protect facilities, personnel, and work products are allowable. Such costs include, but are not limited to, wages and uniforms of personnel engaged in security activities; equipment; barriers; protective (non-military) gear, devices, and equipment; contractual security services; and consultants. Capital expenditures for plant security purposes are subject to § 200.439 Equipment and other capital expenditures. § 200.458 Pre-award costs. Pre-award costs are those incurred prior to the effective date of the Federal award directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. tkelley on DSK3SPTVN1PROD with RULES3 § 200.459 Professional service costs. (a) Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the non-Federal entity, are allowable, subject to paragraphs (b) and (c) when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal government. In addition, legal and related services are limited under § 200.435 Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements. (b) In determining the allowability of costs in a particular case, no single factor or any special combination of VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 factors is necessarily determinative. However, the following factors are relevant: (1) The nature and scope of the service rendered in relation to the service required. (2) The necessity of contracting for the service, considering the non-Federal entity’s capability in the particular area. (3) The past pattern of such costs, particularly in the years prior to Federal awards. (4) The impact of Federal awards on the non-Federal entity’s business (i.e., what new problems have arisen). (5) Whether the proportion of Federal work to the non-Federal entity’s total business is such as to influence the nonFederal entity in favor of incurring the cost, particularly where the services rendered are not of a continuing nature and have little relationship to work under Federal awards. (6) Whether the service can be performed more economically by direct employment rather than contracting. (7) The qualifications of the individual or concern rendering the service and the customary fees charged, especially on non-federally funded activities. (8) Adequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, and termination provisions). (c) In addition to the factors in paragraph (b) of this section, to be allowable, retainer fees must be supported by evidence of bona fide services available or rendered. § 200.460 Proposal costs. Proposal costs are the costs of preparing bids, proposals, or applications on potential Federal and non-Federal awards or projects, including the development of data necessary to support the non-Federal entity’s bids or proposals. Proposal costs of the current accounting period of both successful and unsuccessful bids and proposals normally should be treated as indirect (F&A) costs and allocated currently to all activities of the nonFederal entity. No proposal costs of past accounting periods will be allocable to the current period. § 200.461 Publication and printing costs. (a) Publication costs for electronic and print media, including distribution, promotion, and general handling are allowable. If these costs are not identifiable with a particular cost objective, they should be allocated as indirect costs to all benefiting activities of the non-Federal entity. PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 (b) Page charges for professional journal publications are allowable where: (1) The publications report work supported by the Federal government; and (2) The charges are levied impartially on all items published by the journal, whether or not under a Federal award. (3) The non-Federal entity may charge the Federal award before closeout for the costs of publication or sharing of research results if the costs are not incurred during the period of performance of the Federal award. § 200.462 Rearrangement and reconversion costs. (a) Costs incurred for ordinary and normal rearrangement and alteration of facilities are allowable as indirect costs. Special arrangements and alterations costs incurred specifically for a Federal award are allowable as a direct cost with the prior approval of the Federal awarding agency or pass-through entity. (b) Costs incurred in the restoration or rehabilitation of the non-Federal entity’s facilities to approximately the same condition existing immediately prior to commencement of Federal awards, less costs related to normal wear and tear, are allowable. § 200.463 Recruiting costs. (a) Subject to paragraphs (b) and (c) of this section, and provided that the size of the staff recruited and maintained is in keeping with workload requirements, costs of ‘‘help wanted’’ advertising, operating costs of an employment office necessary to secure and maintain an adequate staff, costs of operating an aptitude and educational testing program, travel costs of employees while engaged in recruiting personnel, travel costs of applicants for interviews for prospective employment, and relocation costs incurred incident to recruitment of new employees, are allowable to the extent that such costs are incurred pursuant to the nonFederal entity’s standard recruitment program. Where the non-Federal entity uses employment agencies, costs not in excess of standard commercial rates for such services are allowable. (b) Special emoluments, fringe benefits, and salary allowances incurred to attract professional personnel that do not meet the test of reasonableness or do not conform with the established practices of the non-Federal entity, are unallowable. (c) Where relocation costs incurred incident to recruitment of a new employee have been funded in whole or in part as a direct cost to a Federal award, and the newly hired employee E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations resigns for reasons within the employee’s control within 12 months after hire, the non-Federal entity will be required to refund or credit the Federal share of such relocation costs to the Federal government. See also § 200.464 Relocation costs of employees. (d) Short-term, travel visa costs (as opposed to longer-term, immigration visas) are generally allowable expenses that may be proposed as a direct cost. Since short-term visas are issued for a specific period and purpose, they can be clearly identified as directly connected to work performed on a Federal award. For these costs to be directly charged to a Federal award, they must: (1) Be critical and necessary for the conduct of the project; (2) Be allowable under the applicable cost principles; (3) Be consistent with the non-Federal entity’s cost accounting practices and non-Federal entity policy; and (4) Meet the definition of ‘‘direct cost’’ as described in the applicable cost principles. tkelley on DSK3SPTVN1PROD with RULES3 § 200.464 Relocation costs of employees. (a) Relocation costs are costs incident to the permanent change of duty assignment (for an indefinite period or for a stated period of not less than 12 months) of an existing employee or upon recruitment of a new employee. Relocation costs are allowable, subject to the limitations described in paragraphs (b), (c), and (d) of this section, provided that: (1) The move is for the benefit of the employer. (2) Reimbursement to the employee is in accordance with an established written policy consistently followed by the employer. (3) The reimbursement does not exceed the employee’s actual (or reasonably estimated) expenses. (b) Allowable relocation costs for current employees are limited to the following: (1) The costs of transportation of the employee, members of his or her immediate family and his household, and personal effects to the new location. (2) The costs of finding a new home, such as advance trips by employees and spouses to locate living quarters and temporary lodging during the transition period, up to maximum period of 30 calendar days. (3) Closing costs, such as brokerage, legal, and appraisal fees, incident to the disposition of the employee’s former home. These costs, together with those described in (4), are limited to 8 per cent of the sales price of the employee’s former home. (4) The continuing costs of ownership (for up to six months) of the vacant VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 former home after the settlement or lease date of the employee’s new permanent home, such as maintenance of buildings and grounds (exclusive of fixing-up expenses), utilities, taxes, and property insurance. (5) Other necessary and reasonable expenses normally incident to relocation, such as the costs of canceling an unexpired lease, transportation of personal property, and purchasing insurance against loss of or damages to personal property. The cost of canceling an unexpired lease is limited to three times the monthly rental. (c) Allowable relocation costs for new employees are limited to those described in paragraphs (b)(1) and (2) of this section. When relocation costs incurred incident to the recruitment of new employees have been allowed either as a direct or indirect cost and the employee resigns for reasons within the employee’s control within 12 months after hire, the non-Federal entity must refund or credit the Federal government for its share of the cost. However, the costs of travel to an overseas location must be considered travel costs in accordance with § 200.474 Travel costs, and not this § 200.464 Relocation costs of employees, for the purpose of this paragraph if dependents are not permitted at the location for any reason and the costs do not include costs of transporting household goods. (d) The following costs related to relocation are unallowable: (1) Fees and other costs associated with acquiring a new home. (2) A loss on the sale of a former home. (3) Continuing mortgage principal and interest payments on a home being sold. (4) Income taxes paid by an employee related to reimbursed relocation costs. § 200.465 Rental costs of real property and equipment. (a) Subject to the limitations described in paragraphs (b) through (d) of this section, rental costs are allowable to the extent that the rates are reasonable in light of such factors as: rental costs of comparable property, if any; market conditions in the area; alternatives available; and the type, life expectancy, condition, and value of the property leased. Rental arrangements should be reviewed periodically to determine if circumstances have changed and other options are available. (b) Rental costs under ‘‘sale and lease back’’ arrangements are allowable only up to the amount that would be allowed had the non-Federal entity continued to own the property. This amount would include expenses such as depreciation, maintenance, taxes, and insurance. PO 00000 Frm 00071 Fmt 4701 Sfmt 4700 78659 (c) Rental costs under ‘‘less-thanarm’s-length’’ leases are allowable only up to the amount (as explained in paragraph (b) of this section). For this purpose, a less-than-arm’s-length lease is one under which one party to the lease agreement is able to control or substantially influence the actions of the other. Such leases include, but are not limited to those between: (1) Divisions of the non-Federal entity; (2) The non-Federal entity under common control through common officers, directors, or members; and (3) The non-Federal entity and a director, trustee, officer, or key employee of the non-Federal entity or an immediate family member, either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest. For example, the non-Federal entity may establish a separate corporation for the sole purpose of owning property and leasing it back to the non-Federal entity. (4) Family members include one party with any of the following relationships to another party: (i) Spouse, and parents thereof; (ii) Children, and spouses thereof; (iii) Parents, and spouses thereof; (iv) Siblings, and spouses thereof; (v) Grandparents and grandchildren, and spouses thereof; (vi) Domestic partner and parents thereof, including domestic partners of any individual in 2 through 5 of this definition; and (vii) Any individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship. (5) Rental costs under leases which are required to be treated as capital leases under GAAP are allowable only up to the amount (as explained in paragraph (b) of this section) that would be allowed had the non-Federal entity purchased the property on the date the lease agreement was executed. The provisions of GAAP must be used to determine whether a lease is a capital lease. Interest costs related to capital leases are allowable to the extent they meet the criteria in § 200.449 Interest. Unallowable costs include amounts paid for profit, management fees, and taxes that would not have been incurred had the non-Federal entity purchased the property. (6) The rental of any property owned by any individuals or entities affiliated with the non-Federal entity, to include commercial or residential real estate, for purposes such as the home office workspace is unallowable. E:\FR\FM\26DER3.SGM 26DER3 78660 § 200.466 costs. Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Scholarships and student aid (a) Costs of scholarships, fellowships, and other programs of student aid at IHEs are allowable only when the purpose of the Federal award is to provide training to selected participants and the charge is approved by the Federal awarding agency. However, tuition remission and other forms of compensation paid as, or in lieu of, wages to students performing necessary work are allowable provided that: (1) The individual is conducting activities necessary to the Federal award; (2) Tuition remission and other support are provided in accordance with established policy of the IHE and consistently provided in a like manner to students in return for similar activities conducted under Federal awards as well as other activities; and (3) During the academic period, the student is enrolled in an advanced degree program at a non-Federal entity or affiliated institution and the activities of the student in relation to the Federal award are related to the degree program; (4) The tuition or other payments are reasonable compensation for the work performed and are conditioned explicitly upon the performance of necessary work; and (5) It is the IHE’s practice to similarly compensate students under Federal awards as well as other activities. (b) Charges for tuition remission and other forms of compensation paid to students as, or in lieu of, salaries and wages must be subject to the reporting requirements in § 200.430 Compensation—personal services, and must be treated as direct or indirect cost in accordance with the actual work being performed. Tuition remission may be charged on an average rate basis. See also § 200.431 Compensation—fringe benefits. § 200.467 Selling and marketing costs. Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421 Advertising and public relations.) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award. tkelley on DSK3SPTVN1PROD with RULES3 § 200.468 Specialized service facilities. (a) The costs of services provided by highly complex or specialized facilities operated by the non-Federal entity, such as computing facilities, wind tunnels, and reactors are allowable, provided the charges for the services meet the conditions of either paragraphs (b) or (c) of this section, and, in addition, take VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 into account any items of income or Federal financing that qualify as applicable credits under § 200.406 Applicable credits. (b) The costs of such services, when material, must be charged directly to applicable awards based on actual usage of the services on the basis of a schedule of rates or established methodology that: (1) Does not discriminate between activities under Federal awards and other activities of the non-Federal entity, including usage by the nonFederal entity for internal purposes, and (2) Is designed to recover only the aggregate costs of the services. The costs of each service must consist normally of both its direct costs and its allocable share of all indirect (F&A) costs. Rates must be adjusted at least biennially, and must take into consideration over/under applied costs of the previous period(s). (c) Where the costs incurred for a service are not material, they may be allocated as indirect (F&A) costs. (d) Under some extraordinary circumstances, where it is in the best interest of the Federal government and the non-Federal entity to establish alternative costing arrangements, such arrangements may be worked out with the Federal cognizant agency for indirect costs. § 200.469 Student activity costs. Costs incurred for intramural activities, student publications, student clubs, and other student activities, are unallowable, unless specifically provided for in the Federal award. § 200.470 Tax). Taxes (including Value Added (a) For states, local governments and Indian tribes: (1) Taxes that a governmental unit is legally required to pay are allowable, except for self-assessed taxes that disproportionately affect Federal programs or changes in tax policies that disproportionately affect Federal programs. (2) Gasoline taxes, motor vehicle fees, and other taxes that are in effect user fees for benefits provided to the Federal government are allowable. (3) This provision does not restrict the authority of the Federal awarding agency to identify taxes where Federal participation is inappropriate. Where the identification of the amount of unallowable taxes would require an inordinate amount of effort, the cognizant agency for indirect costs may accept a reasonable approximation thereof. (b) For nonprofit organizations and IHEs: (1) In general, taxes which the nonFederal entity is required to pay and PO 00000 Frm 00072 Fmt 4701 Sfmt 4700 which are paid or accrued in accordance with GAAP, and payments made to local governments in lieu of taxes which are commensurate with the local government services received are allowable, except for: (i) Taxes from which exemptions are available to the non-Federal entity directly or which are available to the non-Federal entity based on an exemption afforded the Federal government and, in the latter case, when the Federal awarding agency makes available the necessary exemption certificates, (ii) Special assessments on land which represent capital improvements, and (iii) Federal income taxes. (2) Any refund of taxes, and any payment to the non-Federal entity of interest thereon, which were allowed as Federal award costs, will be credited either as a cost reduction or cash refund, as appropriate, to the Federal government. However, any interest actually paid or credited to an nonFederal entity incident to a refund of tax, interest, and penalty will be paid or credited to the Federal government only to the extent that such interest accrued over the period during which the nonFederal entity has been reimbursed by the Federal government for the taxes, interest, and penalties. (c) Value Added Tax (VAT) Foreign taxes charged for the purchase of goods or services that a non-Federal entity is legally required to pay in country is an allowable expense under Federal awards. Foreign tax refunds or applicable credits under Federal awards refer to receipts, or reduction of expenditures, which operate to offset or reduce expense items that are allocable to Federal awards as direct or indirect costs. To the extent that such credits accrued or received by the non-Federal entity relate to allowable cost, these costs must be credited to the Federal awarding agency either as costs or cash refunds. If the costs are credited back to the Federal award, the non-Federal entity may reduce the Federal share of costs by the amount of the foreign tax reimbursement, or where Federal award has not expired, use the foreign government tax refund for approved activities under the Federal award with prior approval of the Federal awarding agency. § 200.471 Termination costs. Termination of a Federal award generally gives rise to the incurrence of costs, or the need for special treatment of costs, which would not have arisen had the Federal award not been terminated. Cost principles covering E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations these items are set forth in this section. They are to be used in conjunction with the other provisions of this Part in termination situations. (a) The cost of items reasonably usable on the non-Federal entity’s other work must not be allowable unless the non-Federal entity submits evidence that it would not retain such items at cost without sustaining a loss. In deciding whether such items are reasonably usable on other work of the non-Federal entity, the Federal awarding agency should consider the non-Federal entity’s plans and orders for current and scheduled activity. Contemporaneous purchases of common items by the non-Federal entity must be regarded as evidence that such items are reasonably usable on the non-Federal entity’s other work. Any acceptance of common items as allocable to the terminated portion of the Federal award must be limited to the extent that the quantities of such items on hand, in transit, and on order are in excess of the reasonable quantitative requirements of other work. (b) If in a particular case, despite all reasonable efforts by the non-Federal entity, certain costs cannot be discontinued immediately after the effective date of termination, such costs are generally allowable within the limitations set forth in this Part, except that any such costs continuing after termination due to the negligent or willful failure of the non-Federal entity to discontinue such costs must be unallowable. (c) Loss of useful value of special tooling, machinery, and equipment is generally allowable if: (1) Such special tooling, special machinery, or equipment is not reasonably capable of use in the other work of the non-Federal entity, (2) The interest of the Federal government is protected by transfer of title or by other means deemed appropriate by the Federal awarding agency (see also § 200.313 Equipment, paragraph (d), and (3) The loss of useful value for any one terminated Federal award is limited to that portion of the acquisition cost which bears the same ratio to the total acquisition cost as the terminated portion of the Federal award bears to the entire terminated Federal award and other Federal awards for which the special tooling, machinery, or equipment was acquired. (d) Rental costs under unexpired leases are generally allowable where clearly shown to have been reasonably necessary for the performance of the terminated Federal award less the residual value of such leases, if: VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (1) The amount of such rental claimed does not exceed the reasonable use value of the property leased for the period of the Federal award and such further period as may be reasonable, and (2) The non-Federal entity makes all reasonable efforts to terminate, assign, settle, or otherwise reduce the cost of such lease. There also may be included the cost of alterations of such leased property, provided such alterations were necessary for the performance of the Federal award, and of reasonable restoration required by the provisions of the lease. (e) Settlement expenses including the following are generally allowable: (1) Accounting, legal, clerical, and similar costs reasonably necessary for: (i) The preparation and presentation to the Federal awarding agency of settlement claims and supporting data with respect to the terminated portion of the Federal award, unless the termination is for cause (see Subpart D—Post Federal Award Requirements of this Part, §§ 200.338 Remedies for Noncompliance through 200.342 Effects of Suspension and termination); and (ii) The termination and settlement of subawards. (2) Reasonable costs for the storage, transportation, protection, and disposition of property provided by the Federal government or acquired or produced for the Federal award. (f) Claims under subawards, including the allocable portion of claims which are common to the Federal award and to other work of the non-Federal entity, are generally allowable. An appropriate share of the non-Federal entity’s indirect costs may be allocated to the amount of settlements with contractors and/or subrecipients, provided that the amount allocated is otherwise consistent with the basic guidelines contained in § 200.414 Indirect (F&A) costs. The indirect costs so allocated must exclude the same and similar costs claimed directly or indirectly as settlement expenses. § 200.472 Training and education costs. The cost of training and education provided for employee development is allowable. § 200.473 Transportation costs. Costs incurred for freight, express, cartage, postage, and other transportation services relating either to goods purchased, in process, or delivered, are allowable. When such costs can readily be identified with the items involved, they may be charged directly as transportation costs or added to the cost of such items. Where identification with the materials PO 00000 Frm 00073 Fmt 4701 Sfmt 4700 78661 received cannot readily be made, inbound transportation cost may be charged to the appropriate indirect (F&A) cost accounts if the non-Federal entity follows a consistent, equitable procedure in this respect. Outbound freight, if reimbursable under the terms and conditions of the Federal award, should be treated as a direct cost. § 200.474 Travel costs. (a) General. Travel costs are the expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the non-Federal entity. Such costs may be charged on an actual cost basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip and not to selected days of the trip, and results in charges consistent with those normally allowed in like circumstances in the non-Federal entity’s non-federallyfunded activities and in accordance with non-Federal entity’s written travel reimbursement policies. Notwithstanding the provisions of § 200.444 General costs of government, travel costs of officials covered by that section are allowable with the prior written approval of the Federal awarding agency or pass-through entity when they are specifically related to the Federal award. (b) Lodging and subsistence. Costs incurred by employees and officers for travel, including costs of lodging, other subsistence, and incidental expenses, must be considered reasonable and otherwise allowable only to the extent such costs do not exceed charges normally allowed by the non-Federal entity in its regular operations as the result of the non-Federal entity’s written travel policy. In addition, if these costs are charged directly to the Federal award documentation must justify that: (1) Participation of the individual is necessary to the Federal award; and (2) The costs are reasonable and consistent with non-Federal entity’s established travel policy. (c)(1) Temporary dependent care costs (as dependent is defined in 26 U.S.C. 152) above and beyond regular dependent care that directly results from travel to conferences is allowable provided that: (i) The costs are a direct result of the individual’s travel for the Federal award; (ii) The costs are consistent with the non-Federal entity’s documented travel policy for all entity travel; and (iii) Are only temporary during the travel period. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78662 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (2) Travel costs for dependents are unallowable, except for travel of duration of six months or more with prior approval of the Federal awarding agency. See also § 200.432 Conferences. (3) In the absence of an acceptable, written non-Federal entity policy regarding travel costs, the rates and amounts established under 5 U.S.C. 5701–11, (‘‘Travel and Subsistence Expenses; Mileage Allowances’’), or by the Administrator of General Services, or by the President (or his or her designee) pursuant to any provisions of such subchapter must apply to travel under Federal awards (48 CFR 31.205– 46(a)). (d) Commercial air travel. (1) Airfare costs in excess of the basic least expensive unrestricted accommodations class offered by commercial airlines are unallowable except when such accommodations would: (i) Require circuitous routing; (ii) Require travel during unreasonable hours; (iii) Excessively prolong travel; (iv) Result in additional costs that would offset the transportation savings; or (v) Offer accommodations not reasonably adequate for the traveler’s medical needs. The non-Federal entity must justify and document these conditions on a case-by-case basis in order for the use of first-class or business-class airfare to be allowable in such cases. (2) Unless a pattern of avoidance is detected, the Federal government will generally not question a non-Federal entity’s determinations that customary standard airfare or other discount airfare is unavailable for specific trips if the non-Federal entity can demonstrate that such airfare was not available in the specific case. (e) Air travel by other than commercial carrier. Costs of travel by non-Federal entity-owned, -leased, or -chartered aircraft include the cost of lease, charter, operation (including personnel costs), maintenance, depreciation, insurance, and other related costs. The portion of such costs that exceeds the cost of airfare as provided for in paragraph (d) of this section, is unallowable. § 200.475 Trustees. Travel and subsistence costs of trustees (or directors) at IHEs and nonprofit organizations are allowable. See also § 200.474 Travel costs. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Subpart F—Audit Requirements General § 200.500 Purpose. This Part sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of non-Federal entities expending Federal awards. Audits § 200.501 Audit requirements. (a) Audit required. A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single or program-specific audit conducted for that year in accordance with the provisions of this Part. (b) Single audit. A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single audit conducted in accordance with § 200.514 Scope of audit except when it elects to have a program-specific audit conducted in accordance with paragraph (c) of this section. (c) Program-specific audit election. When an auditee expends Federal awards under only one Federal program (excluding R&D) and the Federal program’s statutes, regulations, or the terms and conditions of the Federal award do not require a financial statement audit of the auditee, the auditee may elect to have a programspecific audit conducted in accordance with § 200.507 Program-specific audits. A program-specific audit may not be elected for R&D unless all of the Federal awards expended were received from the same Federal agency, or the same Federal agency and the same passthrough entity, and that Federal agency, or pass-through entity in the case of a subrecipient, approves in advance a program-specific audit. (d) Exemption when Federal awards expended are less than $750,000. A nonFederal entity that expends less than $750,000 during the non-Federal entity’s fiscal year in Federal awards is exempt from Federal audit requirements for that year, except as noted in § 200.503 Relation to other audit requirements, but records must be available for review or audit by appropriate officials of the Federal agency, pass-through entity, and Government Accountability Office (GAO). (e) Federally Funded Research and Development Centers (FFRDC). Management of an auditee that owns or operates a FFRDC may elect to treat the FFRDC as a separate entity for purposes of this Part. PO 00000 Frm 00074 Fmt 4701 Sfmt 4700 (f) Subrecipients and Contractors. An auditee may simultaneously be a recipient, a subrecipient, and a contractor. Federal awards expended as a recipient or a subrecipient are subject to audit under this Part. The payments received for goods or services provided as a contractor are not Federal awards. Section § 200.330 Subrecipient and contractor determinations should be considered in determining whether payments constitute a Federal award or a payment for goods or services provided as a contractor. (g) Compliance responsibility for contractors. In most cases, the auditee’s compliance responsibility for contractors is only to ensure that the procurement, receipt, and payment for goods and services comply with Federal statutes, regulations, and the terms and conditions of Federal awards. Federal award compliance requirements normally do not pass through to contractors. However, the auditee is responsible for ensuring compliance for procurement transactions which are structured such that the contractor is responsible for program compliance or the contractor’s records must be reviewed to determine program compliance. Also, when these procurement transactions relate to a major program, the scope of the audit must include determining whether these transactions are in compliance with Federal statutes, regulations, and the terms and conditions of Federal awards. (h) For-profit subrecipient. Since this Part does not apply to for-profit subrecipients, the pass-through entity is responsible for establishing requirements, as necessary, to ensure compliance by for-profit subrecipients. The agreement with the for-profit subrecipient should describe applicable compliance requirements and the forprofit subrecipient’s compliance responsibility. Methods to ensure compliance for Federal awards made to for-profit subrecipients may include pre-award audits, monitoring during the agreement, and post-award audits. See also § 200.331 Requirements for passthrough entities. § 200.502 Basis for determining Federal awards expended. (a) Determining Federal awards expended. The determination of when a Federal award is expended should be based on when the activity related to the Federal award occurs. Generally, the activity pertains to events that require the non-Federal entity to comply with Federal statutes, regulations, and the terms and conditions of Federal awards, such as: expenditure/expense transactions associated with awards E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations including grants, cost-reimbursement contracts under the FAR, compacts with Indian Tribes, cooperative agreements, and direct appropriations; the disbursement of funds to subrecipients; the use of loan proceeds under loan and loan guarantee programs; the receipt of property; the receipt of surplus property; the receipt or use of program income; the distribution or use of food commodities; the disbursement of amounts entitling the non-Federal entity to an interest subsidy; and the period when insurance is in force. (b) Loan and loan guarantees (loans). Since the Federal government is at risk for loans until the debt is repaid, the following guidelines must be used to calculate the value of Federal awards expended under loan programs, except as noted in paragraphs (c) and (d) of this section: (1) Value of new loans made or received during the audit period; plus (2) Beginning of the audit period balance of loans from previous years for which the Federal government imposes continuing compliance requirements; plus (3) Any interest subsidy, cash, or administrative cost allowance received. (c) Loan and loan guarantees (loans) at IHEs. When loans are made to students of an IHE but the IHE does not make the loans, then only the value of loans made during the audit period must be considered Federal awards expended in that audit period. The balance of loans for previous audit periods is not included as Federal awards expended because the lender accounts for the prior balances. (d) Prior loan and loan guarantees (loans). Loans, the proceeds of which were received and expended in prior years, are not considered Federal awards expended under this Part when the Federal statutes, regulations, and the terms and conditions of Federal awards pertaining to such loans impose no continuing compliance requirements other than to repay the loans. (e) Endowment funds. The cumulative balance of Federal awards for endowment funds that are federally restricted are considered Federal awards expended in each audit period in which the funds are still restricted. (f) Free rent. Free rent received by itself is not considered a Federal award expended under this Part. However, free rent received as part of a Federal award to carry out a Federal program must be included in determining Federal awards expended and subject to audit under this Part. (g) Valuing non-cash assistance. Federal non-cash assistance, such as free rent, food commodities, donated VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 property, or donated surplus property, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal agency. (h) Medicare. Medicare payments to a non-Federal entity for providing patient care services to Medicare-eligible individuals are not considered Federal awards expended under this Part. (i) Medicaid. Medicaid payments to a subrecipient for providing patient care services to Medicaid-eligible individuals are not considered Federal awards expended under this Part unless a state requires the funds to be treated as Federal awards expended because reimbursement is on a costreimbursement basis. (j) Certain loans provided by the National Credit Union Administration. For purposes of this Part, loans made from the National Credit Union Share Insurance Fund and the Central Liquidity Facility that are funded by contributions from insured non-Federal entities are not considered Federal awards expended. § 200.503 Relation to other audit requirements. (a) An audit conducted in accordance with this Part must be in lieu of any financial audit of Federal awards which a non-Federal entity is required to undergo under any other Federal statute or regulation. To the extent that such audit provides a Federal agency with the information it requires to carry out its responsibilities under Federal statute or regulation, a Federal agency must rely upon and use that information. (b) Notwithstanding subsection (a), a Federal agency, Inspectors General, or GAO may conduct or arrange for additional audits which are necessary to carry out its responsibilities under Federal statute or regulation. The provisions of this Part do not authorize any non-Federal entity to constrain, in any manner, such Federal agency from carrying out or arranging for such additional audits, except that the Federal agency must plan such audits to not be duplicative of other audits of Federal awards. Prior to commencing such an audit, the Federal agency or pass-through entity must review the FAC for recent audits submitted by the non-Federal entity, and to the extent such audits meet a Federal agency or pass-through entity’s needs, the Federal agency or pass-through entity must rely upon and use such audits. Any additional audits must be planned and performed in such a way as to build upon work performed, including the audit documentation, sampling, and testing already performed, by other auditors. PO 00000 Frm 00075 Fmt 4701 Sfmt 4700 78663 (c) The provisions of this Part do not limit the authority of Federal agencies to conduct, or arrange for the conduct of, audits and evaluations of Federal awards, nor limit the authority of any Federal agency Inspector General or other Federal official. For example, requirements that may be applicable under the FAR or CAS and the terms and conditions of a cost-reimbursement contract may include additional applicable audits to be conducted or arranged for by Federal agencies. (d) Federal agency to pay for additional audits. A Federal agency that conducts or arranges for additional audits must, consistent with other applicable Federal statutes and regulations, arrange for funding the full cost of such additional audits. (e) Request for a program to be audited as a major program. A Federal awarding agency may request that an auditee have a particular Federal program audited as a major program in lieu of the Federal awarding agency conducting or arranging for the additional audits. To allow for planning, such requests should be made at least 180 calendar days prior to the end of the fiscal year to be audited. The auditee, after consultation with its auditor, should promptly respond to such a request by informing the Federal awarding agency whether the program would otherwise be audited as a major program using the risk-based audit approach described in § 200.518 Major program determination and, if not, the estimated incremental cost. The Federal awarding agency must then promptly confirm to the auditee whether it wants the program audited as a major program. If the program is to be audited as a major program based upon this Federal awarding agency request, and the Federal awarding agency agrees to pay the full incremental costs, then the auditee must have the program audited as a major program. A pass-through entity may use the provisions of this paragraph for a subrecipient. § 200.504 Frequency of audits. Except for the provisions for biennial audits provided in paragraphs (a) and (b) of this section, audits required by this Part must be performed annually. Any biennial audit must cover both years within the biennial period. (a) A state, local government, or Indian tribe that is required by constitution or statute, in effect on January 1, 1987, to undergo its audits less frequently than annually, is permitted to undergo its audits pursuant to this Part biennially. This requirement must still be in effect for the biennial period. E:\FR\FM\26DER3.SGM 26DER3 78664 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (b) Any nonprofit organization that had biennial audits for all biennial periods ending between July 1, 1992, and January 1, 1995, is permitted to undergo its audits pursuant to this Part biennially. § 200.505 Sanctions. In cases of continued inability or unwillingness to have an audit conducted in accordance with this Part, Federal agencies and pass-through entities must take appropriate action as provided in § 200.338 Remedies for noncompliance. § 200.506 Audit costs. See § 200.425 Audit services. tkelley on DSK3SPTVN1PROD with RULES3 § 200.507 Program-specific audits. (a) Program-specific audit guide available. In many cases, a programspecific audit guide will be available to provide specific guidance to the auditor with respect to internal controls, compliance requirements, suggested audit procedures, and audit reporting requirements. A listing of current program-specific audit guides can be found in the compliance supplement beginning with the 2014 supplement including Federal awarding agency contact information and a Web site where a copy of the guide can be obtained. When a current programspecific audit guide is available, the auditor must follow GAGAS and the guide when performing a programspecific audit. (b) Program-specific audit guide not available. (1) When a program-specific audit guide is not available, the auditee and auditor must have basically the same responsibilities for the Federal program as they would have for an audit of a major program in a single audit. (2) The auditee must prepare the financial statement(s) for the Federal program that includes, at a minimum, a schedule of expenditures of Federal awards for the program and notes that describe the significant accounting policies used in preparing the schedule, a summary schedule of prior audit findings consistent with the requirements of § 200.511 Audit findings follow-up, paragraph (b), and a corrective action plan consistent with the requirements of § 200.511 Audit findings follow-up, paragraph (c). (3) The auditor must: (i) Perform an audit of the financial statement(s) for the Federal program in accordance with GAGAS; (ii) Obtain an understanding of internal controls and perform tests of internal controls over the Federal program consistent with the VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 requirements of § 200.514 Scope of audit, paragraph (c) for a major program; (iii) Perform procedures to determine whether the auditee has complied with Federal statutes, regulations, and the terms and conditions of Federal awards that could have a direct and material effect on the Federal program consistent with the requirements of § 200.514 Scope of audit, paragraph (d) for a major program; (iv) Follow up on prior audit findings, perform procedures to assess the reasonableness of the summary schedule of prior audit findings prepared by the auditee in accordance with the requirements of § 200.511 Audit findings follow-up, and report, as a current year audit finding, when the auditor concludes that the summary schedule of prior audit findings materially misrepresents the status of any prior audit finding; and (v) Report any audit findings consistent with the requirements of § 200.516 Audit findings. (4) The auditor’s report(s) may be in the form of either combined or separate reports and may be organized differently from the manner presented in this section. The auditor’s report(s) must state that the audit was conducted in accordance with this Part and include the following: (i) An opinion (or disclaimer of opinion) as to whether the financial statement(s) of the Federal program is presented fairly in all material respects in accordance with the stated accounting policies; (ii) A report on internal control related to the Federal program, which must describe the scope of testing of internal control and the results of the tests; (iii) A report on compliance which includes an opinion (or disclaimer of opinion) as to whether the auditee complied with laws, regulations, and the terms and conditions of Federal awards which could have a direct and material effect on the Federal program; and (iv) A schedule of findings and questioned costs for the Federal program that includes a summary of the auditor’s results relative to the Federal program in a format consistent with § 200.515 Audit reporting, paragraph (d)(1) and findings and questioned costs consistent with the requirements of § 200.515 Audit reporting, paragraph (d)(3). (c) Report submission for programspecific audits. (1) The audit must be completed and the reporting required by paragraph (c)(2) or (c)(3) of this section submitted within the earlier of 30 calendar days PO 00000 Frm 00076 Fmt 4701 Sfmt 4700 after receipt of the auditor’s report(s), or nine months after the end of the audit period, unless a different period is specified in a program-specific audit guide. Unless restricted by Federal law or regulation, the auditee must make report copies available for public inspection. Auditees and auditors must ensure that their respective parts of the reporting package do not include protected personally identifiable information. (2) When a program-specific audit guide is available, the auditee must electronically submit to the FAC the data collection form prepared in accordance with § 200.512 Report submission, paragraph (b), as applicable to a program-specific audit, and the reporting required by the programspecific audit guide. (3) When a program-specific audit guide is not available, the reporting package for a program-specific audit must consist of the financial statement(s) of the Federal program, a summary schedule of prior audit findings, and a corrective action plan as described in paragraph (b)(2) of this section, and the auditor’s report(s) described in paragraph (b)(4) of this section. The data collection form prepared in accordance with § 200.512 Report submission, paragraph (b), as applicable to a program-specific audit, and one copy of this reporting package must be electronically submitted to the FAC. (d) Other sections of this Part may apply. Program-specific audits are subject to: (1) 200.500 Purpose through 200.503 Relation to other audit requirements, paragraph (d); (2) 200.504 Frequency of audits through 200.506 Audit costs; (3) 200.508 Auditee responsibilities through 200.509 Auditor selection; (4) 200.511 Audit findings follow-up; (5) 200.512 Report submission, paragraphs (e) through (h); (6) 200.513 Responsibilities; (7) 200.516 Audit findings through 200.517 Audit documentation; (8) 200.521 Management decision, and (9) Other referenced provisions of this Part unless contrary to the provisions of this section, a program-specific audit guide, or program statutes and regulations. Auditees § 200.508 Auditee responsibilities. The auditee must: (a) Procure or otherwise arrange for the audit required by this Part in accordance with § 200.509 Auditor E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations selection, and ensure it is properly performed and submitted when due in accordance with § 200.512 Report submission. (b) Prepare appropriate financial statements, including the schedule of expenditures of Federal awards in accordance with § 200.510 Financial statements. (c) Promptly follow up and take corrective action on audit findings, including preparation of a summary schedule of prior audit findings and a corrective action plan in accordance with § 200.511 Audit findings followup, paragraph (b) and § 200.511 Audit findings follow-up, paragraph (c), respectively. (d) Provide the auditor with access to personnel, accounts, books, records, supporting documentation, and other information as needed for the auditor to perform the audit required by this Part. tkelley on DSK3SPTVN1PROD with RULES3 § 200.509 Auditor selection. (a) Auditor procurement. In procuring audit services, the auditee must follow the procurement standards prescribed by the Procurement Standards in §§ 200.317 Procurement by states through 20.326 Contract provisions of Subpart D- Post Federal Award Requirements of this Part or the FAR (48 CFR Part 42), as applicable. When procuring audit services, the objective is to obtain high-quality audits. In requesting proposals for audit services, the objectives and scope of the audit must be made clear and the non-Federal entity must request a copy of the audit organization’s peer review report which the auditor is required to provide under GAGAS. Factors to be considered in evaluating each proposal for audit services include the responsiveness to the request for proposal, relevant experience, availability of staff with professional qualifications and technical abilities, the results of peer and external quality control reviews, and price. Whenever possible, the auditee must make positive efforts to utilize small businesses, minority-owned firms, and women’s business enterprises, in procuring audit services as stated in § 200.321 Contracting with small and minority businesses, women’s business enterprises, and labor surplus area firms, or the FAR (48 CFR Part 42), as applicable. (b) Restriction on auditor preparing indirect cost proposals. An auditor who prepares the indirect cost proposal or cost allocation plan may not also be selected to perform the audit required by this Part when the indirect costs recovered by the auditee during the prior year exceeded $1 million. This restriction applies to the base year used VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 in the preparation of the indirect cost proposal or cost allocation plan and any subsequent years in which the resulting indirect cost agreement or cost allocation plan is used to recover costs. (c) Use of Federal auditors. Federal auditors may perform all or part of the work required under this Part if they comply fully with the requirements of this Part. § 200.510 Financial statements. (a) Financial statements. The auditee must prepare financial statements that reflect its financial position, results of operations or changes in net assets, and, where appropriate, cash flows for the fiscal year audited. The financial statements must be for the same organizational unit and fiscal year that is chosen to meet the requirements of this Part. However, non-Federal entitywide financial statements may also include departments, agencies, and other organizational units that have separate audits in accordance with § 200.514 Scope of audit, paragraph (a) and prepare separate financial statements. (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee’s financial statements which must include the total Federal awards expended as determined in accordance with § 200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and passthrough entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (1) List individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name. For R&D, total Federal awards expended must be shown either by individual Federal award or by Federal agency and major subdivision within the Federal agency. For example, the National Institutes of Health is a major subdivision in the Department of Health and Human Services. (2) For Federal awards received as a subrecipient, the name of the passthrough entity and identifying number assigned by the pass-through entity must be included. (3) Provide total Federal awards expended for each individual Federal PO 00000 Frm 00077 Fmt 4701 Sfmt 4700 78665 program and the CFDA number or other identifying number when the CFDA information is not available. For a cluster of programs also provide the total for the cluster. (4) Include the total amount provided to subrecipients from each Federal program. (5) For loan or loan guarantee programs described in § 200.502 Basis for determining Federal awards expended, paragraph (b), identify in the notes to the schedule the balances outstanding at the end of the audit period. This is in addition to including the total Federal awards expended for loan or loan guarantee programs in the schedule. (6) Include notes that describe that significant accounting policies used in preparing the schedule, and note whether or not the non-Federal entity elected to use the 10% de minimis cost rate as covered in § 200.414 Indirect (F&A) costs. § 200.511 Audit findings follow-up. (a) General. The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings. The auditee must also prepare a corrective action plan for current year audit findings. The summary schedule of prior audit findings and the corrective action plan must include the reference numbers the auditor assigns to audit findings under § 200.516 Audit findings, paragraph (c). Since the summary schedule may include audit findings from multiple years, it must include the fiscal year in which the finding initially occurred. The corrective action plan and summary schedule of prior audit findings must include findings relating to the financial statements which are required to be reported in accordance with GAGAS. (b) Summary schedule of prior audit findings. The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs. The summary schedule must also include audit findings reported in the prior audit’s summary schedule of prior audit findings except audit findings listed as corrected in accordance with paragraph (b)(1) of this section, or no longer valid or not warranting further action in accordance with paragraph (b)(3) of this section. (1) When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken. E:\FR\FM\26DER3.SGM 26DER3 78666 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (2) When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken. When corrective action taken is significantly different from corrective action previously reported in a corrective action plan or in the Federal agency’s or pass-through entity’s management decision, the summary schedule must provide an explanation. (3) When the auditee believes the audit findings are no longer valid or do not warrant further action, the reasons for this position must be described in the summary schedule. A valid reason for considering an audit finding as not warranting further action is that all of the following have occurred: (i) Two years have passed since the audit report in which the finding occurred was submitted to the FAC; (ii) The Federal agency or passthrough entity is not currently following up with the auditee on the audit finding; and (iii) A management decision was not issued. (c) Corrective action plan. At the completion of the audit, the auditee must prepare, in a document separate from the auditor’s findings described in § 200.516 Audit findings, a corrective action plan to address each audit finding included in the current year auditor’s reports. The corrective action plan must provide the name(s) of the contact person(s) responsible for corrective action, the corrective action planned, and the anticipated completion date. If the auditee does not agree with the audit findings or believes corrective action is not required, then the corrective action plan must include an explanation and specific reasons. tkelley on DSK3SPTVN1PROD with RULES3 § 200.512 Report submission. (a) General. (1) The audit must be completed and the data collection form described in paragraph (b) of this section and reporting package described in paragraph (c) of this section must be submitted within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. (2) Unless restricted by Federal statutes or regulations, the auditee must make copies available for public inspection. Auditees and auditors must ensure that their respective parts of the reporting package do not include protected personally identifiable information. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (b) Data Collection. The FAC is the repository of record for Subpart F— Audit Requirements of this Part reporting packages and the data collection form. All Federal agencies, pass-through entities and others interested in a reporting package and data collection form must obtain it by accessing the FAC. (1) The auditee must submit required data elements described in Appendix X to Part 200—Data Collection Form (Form SF–SAC), which state whether the audit was completed in accordance with this Part and provides information about the auditee, its Federal programs, and the results of the audit. The data must include information available from the audit required by this Part that is necessary for Federal agencies to use the audit to ensure integrity for Federal programs. The data elements and format must be approved by OMB, available from the FAC, and include collections of information from the reporting package described in paragraph (c) of this section. A senior level representative of the auditee (e.g., state controller, director of finance, chief executive officer, or chief financial officer) must sign a statement to be included as part of the data collection that says that the auditee complied with the requirements of this Part, the data were prepared in accordance with this Part (and the instructions accompanying the form), the reporting package does not include protected personally identifiable information, the information included in its entirety is accurate and complete, and that the FAC is authorized to make the reporting package and the form publicly available on a Web site. (2) Exception for Indian Tribes. An auditee that is an Indian tribe may opt not to authorize the FAC to make the reporting package publicly available on a Web site, by excluding the authorization for the FAC publication in the statement described in paragraph (b)(1) of this section. If this option is exercised, the auditee becomes responsible for submitting the reporting package directly to any pass-through entities through which it has received a Federal award and to pass-through entities for which the summary schedule of prior audit findings reported the status of any findings related to Federal awards that the passthrough entity provided. Unless restricted by Federal statute or regulation, if the auditee opts not to authorize publication, it must make copies of the reporting package available for public inspection. (3) Using the information included in the reporting package described in PO 00000 Frm 00078 Fmt 4701 Sfmt 4700 paragraph (c) of this section, the auditor must complete the applicable data elements of the data collection form. The auditor must sign a statement to be included as part of the data collection form that indicates, at a minimum, the source of the information included in the form, the auditor’s responsibility for the information, that the form is not a substitute for the reporting package described in paragraph (c) of this section, and that the content of the form is limited to the collection of information prescribed by OMB. (c) Reporting package. The reporting package must include the: (1) Financial statements and schedule of expenditures of Federal awards discussed in § 200.510 Financial statements, paragraphs (a) and (b), respectively; (2) Summary schedule of prior audit findings discussed in § 200.511 Audit findings follow-up, paragraph (b); (3) Auditor’s report(s) discussed in § 200.515 Audit reporting; and (4) Corrective action plan discussed in § 200.511 Audit findings follow-up, paragraph (c). (d) Submission to FAC. The auditee must electronically submit to the FAC the data collection form described in paragraph (b) of this section and the reporting package described in paragraph (c) of this section. (e) Requests for management letters issued by the auditor. In response to requests by a Federal agency or passthrough entity, auditees must submit a copy of any management letters issued by the auditor. (f) Report retention requirements. Auditees must keep one copy of the data collection form described in paragraph (b) of this section and one copy of the reporting package described in paragraph (c) of this section on file for three years from the date of submission to the FAC. (g) FAC responsibilities. The FAC must make available the reporting packages received in accordance with paragraph (c) of this section and § 200.507 Program-specific audits, paragraph (c) to the public, except for Indian tribes exercising the option in (b)(2) of this section, and maintain a data base of completed audits, provide appropriate information to Federal agencies, and follow up with known auditees that have not submitted the required data collection forms and reporting packages. (h) Electronic filing. Nothing in this Part must preclude electronic submissions to the FAC in such manner as may be approved by OMB. E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations Federal Agencies tkelley on DSK3SPTVN1PROD with RULES3 § 200.513 Responsibilities. (a)(1) Cognizant agency for audit responsibilities. A non-Federal entity expending more than $50 million a year in Federal awards must have a cognizant agency for audit. The designated cognizant agency for audit must be the Federal awarding agency that provides the predominant amount of direct funding to a non-Federal entity unless OMB designates a specific cognizant agency for audit. (2) To provide for continuity of cognizance, the determination of the predominant amount of direct funding must be based upon direct Federal awards expended in the non-Federal entity’s fiscal years ending in 2009, 2014, 2019 and every fifth year thereafter. For example, audit cognizance for periods ending in 2011 through 2015 will be determined based on Federal awards expended in 2009. (3) Notwithstanding the manner in which audit cognizance is determined, a Federal awarding agency with cognizance for an auditee may reassign cognizance to another Federal awarding agency that provides substantial funding and agrees to be the cognizant agency for audit. Within 30 calendar days after any reassignment, both the old and the new cognizant agency for audit must provide notice of the change to the FAC, the auditee, and, if known, the auditor. The cognizant agency for audit must: (i) Provide technical audit advice and liaison assistance to auditees and auditors. (ii) Obtain or conduct quality control reviews on selected audits made by nonFederal auditors, and provide the results to other interested organizations. Cooperate and provide support to the Federal agency designated by OMB to lead a governmentwide project to determine the quality of single audits by providing a statistically reliable estimate of the extent that single audits conform to applicable requirements, standards, and procedures; and to make recommendations to address noted audit quality issues, including recommendations for any changes to applicable requirements, standards and procedures indicated by the results of the project. This governmentwide audit quality project must be performed once every 6 years beginning in 2018 or at such other interval as determined by OMB, and the results must be public. (iii) Promptly inform other affected Federal agencies and appropriate Federal law enforcement officials of any direct reporting by the auditee or its auditor required by GAGAS or statutes and regulations. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (iv) Advise the community of independent auditors of any noteworthy or important factual trends related to the quality of audits stemming from quality control reviews. Significant problems or quality issues consistently identified through quality control reviews of audit reports must be referred to appropriate state licensing agencies and professional bodies. (v) Advise the auditor, Federal awarding agencies, and, where appropriate, the auditee of any deficiencies found in the audits when the deficiencies require corrective action by the auditor. When advised of deficiencies, the auditee must work with the auditor to take corrective action. If corrective action is not taken, the cognizant agency for audit must notify the auditor, the auditee, and applicable Federal awarding agencies and pass-through entities of the facts and make recommendations for followup action. Major inadequacies or repetitive substandard performance by auditors must be referred to appropriate state licensing agencies and professional bodies for disciplinary action. (vi) Coordinate, to the extent practical, audits or reviews made by or for Federal agencies that are in addition to the audits made pursuant to this Part, so that the additional audits or reviews build upon rather than duplicate audits performed in accordance with this Part. (vii) Coordinate a management decision for cross-cutting audit findings (as defined in § 200.30 Cross-cutting audit finding) that affect the Federal programs of more than one agency when requested by any Federal awarding agency whose awards are included in the audit finding of the auditee. (viii) Coordinate the audit work and reporting responsibilities among auditors to achieve the most costeffective audit. (ix) Provide advice to auditees as to how to handle changes in fiscal years. (b) Oversight agency for audit responsibilities. An auditee who does not have a designated cognizant agency for audit will be under the general oversight of the Federal agency determined in accordance with § 200.73 Oversight agency for audit. A Federal agency with oversight for an auditee may reassign oversight to another Federal agency that agrees to be the oversight agency for audit. Within 30 calendar days after any reassignment, both the old and the new oversight agency for audit must provide notice of the change to the FAC, the auditee, and, if known, the auditor. The oversight agency for audit: (1) Must provide technical advice to auditees and auditors as requested. PO 00000 Frm 00079 Fmt 4701 Sfmt 4700 78667 (2) May assume all or some of the responsibilities normally performed by a cognizant agency for audit. (c) Federal awarding agency responsibilities. The Federal awarding agency must perform the following for the Federal awards it makes (See also the requirements of § 200.210 Information contained in a Federal award): (1) Ensure that audits are completed and reports are received in a timely manner and in accordance with the requirements of this Part. (2) Provide technical advice and counsel to auditees and auditors as requested. (3) Follow-up on audit findings to ensure that the recipient takes appropriate and timely corrective action. As part of audit follow-up, the Federal awarding agency must: (i) Issue a management decision as prescribed in § 200.521 Management decision; (ii) Monitor the recipient taking appropriate and timely corrective action; (iii) Use cooperative audit resolution mechanisms (see § 200.25 Cooperative audit resolution) to improve Federal program outcomes through better audit resolution, follow-up, and corrective action; and (iv) Develop a baseline, metrics, and targets to track, over time, the effectiveness of the Federal agency’s process to follow-up on audit findings and on the effectiveness of Single Audits in improving non-Federal entity accountability and their use by Federal awarding agencies in making award decisions. (4) Provide OMB annual updates to the compliance supplement and work with OMB to ensure that the compliance supplement focuses the auditor to test the compliance requirements most likely to cause improper payments, fraud, waste, abuse or generate audit finding for which the Federal awarding agency will take sanctions. (5) Provide OMB with the name of a single audit accountable official from among the senior policy officials of the Federal awarding agency who must be: (i) Responsible for ensuring that the agency fulfills all the requirement of § 200.513 Responsibilities and effectively uses the single audit process to reduce improper payments and improve Federal program outcomes. (ii) Held accountable to improve the effectiveness of the single audit process based upon metrics as described in paragraph (c)(3)(iv) of this section. (iii) Responsible for designating the Federal agency’s key management single audit liaison. E:\FR\FM\26DER3.SGM 26DER3 78668 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (6) Provide OMB with the name of a key management single audit liaison who must: (i) Serve as the Federal awarding agency’s management point of contact for the single audit process both within and outside the Federal government. (ii) Promote interagency coordination, consistency, and sharing in areas such as coordinating audit follow-up; identifying higher-risk non-Federal entities; providing input on single audit and follow-up policy; enhancing the utility of the FAC; and studying ways to use single audit results to improve Federal award accountability and best practices. (iii) Oversee training for the Federal awarding agency’s program management personnel related to the single audit process. (iv) Promote the Federal awarding agency’s use of cooperative audit resolution mechanisms. (v) Coordinate the Federal awarding agency’s activities to ensure appropriate and timely follow-up and corrective action on audit findings. (vi) Organize the Federal cognizant agency for audit’s follow-up on crosscutting audit findings that affect the Federal programs of more than one Federal awarding agency. (vii) Ensure the Federal awarding agency provides annual updates of the compliance supplement to OMB. (viii) Support the Federal awarding agency’s single audit accountable official’s mission. Auditors tkelley on DSK3SPTVN1PROD with RULES3 § 200.514 Scope of audit. (a) General. The audit must be conducted in accordance with GAGAS. The audit must cover the entire operations of the auditee, or, at the option of the auditee, such audit must include a series of audits that cover departments, agencies, and other organizational units that expended or otherwise administered Federal awards during such audit period, provided that each such audit must encompass the financial statements and schedule of expenditures of Federal awards for each such department, agency, and other organizational unit, which must be considered to be a non-Federal entity. The financial statements and schedule of expenditures of Federal awards must be for the same audit period. (b) Financial statements. The auditor must determine whether the financial statements of the auditee are presented fairly in all material respects in accordance with generally accepted accounting principles. The auditor must also determine whether the schedule of VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 expenditures of Federal awards is stated fairly in all material respects in relation to the auditee’s financial statements as a whole. (c) Internal control. (1) The compliance supplement provides guidance on internal controls over Federal programs based upon the guidance in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States and the Internal Control— Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2) In addition to the requirements of GAGAS, the auditor must perform procedures to obtain an understanding of internal control over Federal programs sufficient to plan the audit to support a low assessed level of control risk of noncompliance for major programs. (3) Except as provided in paragraph (c)(4) of this section, the auditor must: (i) Plan the testing of internal control over compliance for major programs to support a low assessed level of control risk for the assertions relevant to the compliance requirements for each major program; and (ii) Perform testing of internal control as planned in paragraph (c)(3)(i) of this section. (4) When internal control over some or all of the compliance requirements for a major program are likely to be ineffective in preventing or detecting noncompliance, the planning and performing of testing described in paragraph (c)(3) of this section are not required for those compliance requirements. However, the auditor must report a significant deficiency or material weakness in accordance with § 200.516 Audit findings, assess the related control risk at the maximum, and consider whether additional compliance tests are required because of ineffective internal control. (d) Compliance. (1) In addition to the requirements of GAGAS, the auditor must determine whether the auditee has complied with Federal statutes, regulations, and the terms and conditions of Federal awards that may have a direct and material effect on each of its major programs. (2) The principal compliance requirements applicable to most Federal programs and the compliance requirements of the largest Federal programs are included in the compliance supplement. (3) For the compliance requirements related to Federal programs contained in the compliance supplement, an audit of these compliance requirements will meet the requirements of this Part. PO 00000 Frm 00080 Fmt 4701 Sfmt 4700 Where there have been changes to the compliance requirements and the changes are not reflected in the compliance supplement, the auditor must determine the current compliance requirements and modify the audit procedures accordingly. For those Federal programs not covered in the compliance supplement, the auditor should follow the compliance supplement’s guidance for programs not included in the supplement. (4) The compliance testing must include tests of transactions and such other auditing procedures necessary to provide the auditor sufficient appropriate audit evidence to support an opinion on compliance. (e) Audit follow-up. The auditor must follow-up on prior audit findings, perform procedures to assess the reasonableness of the summary schedule of prior audit findings prepared by the auditee in accordance with § 200.511 Audit findings follow-up paragraph (b), and report, as a current year audit finding, when the auditor concludes that the summary schedule of prior audit findings materially misrepresents the status of any prior audit finding. The auditor must perform audit follow-up procedures regardless of whether a prior audit finding relates to a major program in the current year. (f) Data Collection Form. As required in § 200.512 Report submission paragraph (b)(3), the auditor must complete and sign specified sections of the data collection form. § 200.515 Audit reporting. The auditor’s report(s) may be in the form of either combined or separate reports and may be organized differently from the manner presented in this section. The auditor’s report(s) must state that the audit was conducted in accordance with this Part and include the following: (a) An opinion (or disclaimer of opinion) as to whether the financial statements are presented fairly in all material respects in accordance with generally accepted accounting principles and an opinion (or disclaimer of opinion) as to whether the schedule of expenditures of Federal awards is fairly stated in all material respects in relation to the financial statements as a whole. (b) A report on internal control over financial reporting and compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, noncompliance with which could have a material effect on the financial statements. This report must describe the scope of testing of internal control and compliance and the results E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations of the tests, and, where applicable, it will refer to the separate schedule of findings and questioned costs described in paragraph (d) of this section. (c) A report on compliance for each major program and report and internal control over compliance. This report must describe the scope of testing of internal control over compliance, include an opinion or modified opinion as to whether the auditee complied with Federal statutes, regulations, and the terms and conditions of Federal awards which could have a direct and material effect on each major program and refer to the separate schedule of findings and questioned costs described in paragraph (d) of this section. (d) A schedule of findings and questioned costs which must include the following three components: (1) A summary of the auditor’s results, which must include: (i) The type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP (i.e., unmodified opinion, qualified opinion, adverse opinion, or disclaimer of opinion); (ii) Where applicable, a statement about whether significant deficiencies or material weaknesses in internal control were disclosed by the audit of the financial statements; (iii) A statement as to whether the audit disclosed any noncompliance that is material to the financial statements of the auditee; (iv) Where applicable, a statement about whether significant deficiencies or material weaknesses in internal control over major programs were disclosed by the audit; (v) The type of report the auditor issued on compliance for major programs (i.e., unmodified opinion, qualified opinion, adverse opinion, or disclaimer of opinion); (vi) A statement as to whether the audit disclosed any audit findings that the auditor is required to report under § 200.516 Audit findings paragraph (a); (vii) An identification of major programs by listing each individual major program; however in the case of a cluster of programs only the cluster name as shown on the Schedule of Expenditures of Federal Awards is required; (viii) The dollar threshold used to distinguish between Type A and Type B programs, as described in § 200.518 Major program determination paragraph (b)(1), or (b)(3) when a recalculation of the Type A threshold is required for large loan or loan guarantees; and (ix) A statement as to whether the auditee qualified as a low-risk auditee VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 under § 200.520 Criteria for a low-risk auditee. (2) Findings relating to the financial statements which are required to be reported in accordance with GAGAS. (3) Findings and questioned costs for Federal awards which must include audit findings as defined in § 200.516 Audit findings, paragraph (a). (i) Audit findings (e.g., internal control findings, compliance findings, questioned costs, or fraud) that relate to the same issue should be presented as a single audit finding. Where practical, audit findings should be organized by Federal agency or pass-through entity. (ii) Audit findings that relate to both the financial statements and Federal awards, as reported under paragraphs (d)(2) and (d)(3) of this section, respectively, should be reported in both sections of the schedule. However, the reporting in one section of the schedule may be in summary form with a reference to a detailed reporting in the other section of the schedule. (e) Nothing in this Part precludes combining of the audit reporting required by this section with the reporting required by § 200.512 Report submission, paragraph (b) Data Collection when allowed by GAGAS and Appendix X to Part 200—Data Collection Form (Form SF–SAC). § 200.516 Audit findings. (a) Audit findings reported. The auditor must report the following as audit findings in a schedule of findings and questioned costs: (1) Significant deficiencies and material weaknesses in internal control over major programs and significant instances of abuse relating to major programs. The auditor’s determination of whether a deficiency in internal control is a significant deficiency or material weakness for the purpose of reporting an audit finding is in relation to a type of compliance requirement for a major program identified in the Compliance Supplement. (2) Material noncompliance with the provisions of Federal statutes, regulations, or the terms and conditions of Federal awards related to a major program. The auditor’s determination of whether a noncompliance with the provisions of Federal statutes, regulations, or the terms and conditions of Federal awards is material for the purpose of reporting an audit finding is in relation to a type of compliance requirement for a major program identified in the compliance supplement. (3) Known questioned costs that are greater than $25,000 for a type of compliance requirement for a major PO 00000 Frm 00081 Fmt 4701 Sfmt 4700 78669 program. Known questioned costs are those specifically identified by the auditor. In evaluating the effect of questioned costs on the opinion on compliance, the auditor considers the best estimate of total costs questioned (likely questioned costs), not just the questioned costs specifically identified (known questioned costs). The auditor must also report known questioned costs when likely questioned costs are greater than $25,000 for a type of compliance requirement for a major program. In reporting questioned costs, the auditor must include information to provide proper perspective for judging the prevalence and consequences of the questioned costs. (4) Known questioned costs that are greater than $25,000 for a Federal program which is not audited as a major program. Except for audit follow-up, the auditor is not required under this Part to perform audit procedures for such a Federal program; therefore, the auditor will normally not find questioned costs for a program that is not audited as a major program. However, if the auditor does become aware of questioned costs for a Federal program that is not audited as a major program (e.g., as part of audit follow-up or other audit procedures) and the known questioned costs are greater than $25,000, then the auditor must report this as an audit finding. (5) The circumstances concerning why the auditor’s report on compliance for each major program is other than an unmodified opinion, unless such circumstances are otherwise reported as audit findings in the schedule of findings and questioned costs for Federal awards. (6) Known or likely fraud affecting a Federal award, unless such fraud is otherwise reported as an audit finding in the schedule of findings and questioned costs for Federal awards. This paragraph does not require the auditor to report publicly information which could compromise investigative or legal proceedings or to make an additional reporting when the auditor confirms that the fraud was reported outside the auditor’s reports under the direct reporting requirements of GAGAS. (7) Instances where the results of audit follow-up procedures disclosed that the summary schedule of prior audit findings prepared by the auditee in accordance with § 200.511 Audit findings follow-up, paragraph (b) materially misrepresents the status of any prior audit finding. (b) Audit finding detail and clarity. Audit findings must be presented in sufficient detail and clarity for the auditee to prepare a corrective action E:\FR\FM\26DER3.SGM 26DER3 78670 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations plan and take corrective action, and for Federal agencies and pass-through entities to arrive at a management decision. The following specific information must be included, as applicable, in audit findings: (1) Federal program and specific Federal award identification including the CFDA title and number, Federal award identification number and year, name of Federal agency, and name of the applicable pass-through entity. When information, such as the CFDA title and number or Federal award identification number, is not available, the auditor must provide the best information available to describe the Federal award. (2) The criteria or specific requirement upon which the audit finding is based, including the Federal statutes, regulations, or the terms and conditions of the Federal awards. Criteria generally identify the required or desired state or expectation with respect to the program or operation. Criteria provide a context for evaluating evidence and understanding findings. (3) The condition found, including facts that support the deficiency identified in the audit finding. (4) A statement of cause that identifies the reason or explanation for the condition or the factors responsible for the difference between the situation that exists (condition) and the required or desired state (criteria), which may also serve as a basis for recommendations for corrective action. (5) The possible asserted effect to provide sufficient information to the auditee and Federal agency, or passthrough entity in the case of a subrecipient, to permit them to determine the cause and effect to facilitate prompt and proper corrective action. A statement of the effect or potential effect should provide a clear, logical link to establish the impact or potential impact of the difference between the condition and the criteria. (6) Identification of questioned costs and how they were computed. Known questioned costs must be identified by applicable CFDA number(s) and applicable Federal award identification number(s). (7) Information to provide proper perspective for judging the prevalence and consequences of the audit findings, such as whether the audit findings represent an isolated instance or a systemic problem. Where appropriate, instances identified must be related to the universe and the number of cases examined and be quantified in terms of dollar value. The auditor should report whether the sampling was a statistically valid sample. (8) Identification of whether the audit finding was a repeat of a finding in the immediately prior audit and if so any applicable prior year audit finding numbers. (9) Recommendations to prevent future occurrences of the deficiency identified in the audit finding. (10) Views of responsible officials of the auditee. (c) Reference numbers. Each audit finding in the schedule of findings and questioned costs must include a reference number in the format meeting the requirements of the data collection form submission required by § 200.512 Report submission, paragraph (b) to allow for easy referencing of the audit findings during follow-up. § 200.517 Audit documentation. (a) Retention of audit documentation. The auditor must retain audit documentation and reports for a minimum of three years after the date of issuance of the auditor’s report(s) to the auditee, unless the auditor is notified in writing by the cognizant agency for audit, oversight agency for audit, cognizant agency for indirect costs, or pass-through entity to extend the retention period. When the auditor is aware that the Federal agency, passthrough entity, or auditee is contesting an audit finding, the auditor must contact the parties contesting the audit finding for guidance prior to destruction of the audit documentation and reports. (b) Access to audit documentation. Audit documentation must be made available upon request to the cognizant or oversight agency for audit or its designee, cognizant agency for indirect cost, a Federal agency, or GAO at the completion of the audit, as part of a quality review, to resolve audit findings, or to carry out oversight responsibilities consistent with the purposes of this Part. Access to audit documentation includes the right of Federal agencies to obtain copies of audit documentation, as is reasonable and necessary. § 200.518 Major program determination. (a) General. The auditor must use a risk-based approach to determine which Federal programs are major programs. This risk-based approach must include consideration of: current and prior audit experience, oversight by Federal agencies and pass-through entities, and the inherent risk of the Federal program. The process in paragraphs (b) through (i) of this section must be followed. (b) Step one. (1) The auditor must identify the larger Federal programs, which must be labeled Type A programs. Type A programs are defined as Federal programs with Federal awards expended during the audit period exceeding the levels outlined in the table in this paragraph (b)(1): Total Federal awards expended Type A/B threshold Equal to $750,000 but less than or equal to $25 million ...................................................................................... Exceed $25 million but less than or equal to $100 million ................................................................................... $750,000. Total Federal awards expended times .03. $3 million. Total Federal awards expended times .003. $30 million. Total Federal awards expended times .0015. Exceed $100 million but less than or equal to $1 billion ...................................................................................... Exceed $1 billion but less than or equal to $10 billion ......................................................................................... tkelley on DSK3SPTVN1PROD with RULES3 Exceed $10 billion but less than or equal to $20 billion ....................................................................................... Exceed $20 billion ................................................................................................................................................. (2) Federal programs not labeled Type A under paragraph (b)(1) of this section must be labeled Type B programs. (3) The inclusion of large loan and loan guarantees (loans) should not result in the exclusion of other programs as Type A programs. When a Federal program providing loans exceeds four VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 times the largest non-loan program it is considered a large loan program, and the auditor must consider this Federal program as a Type A program and exclude its values in determining other Type A programs. This recalculation of the Type A program is performed after PO 00000 Frm 00082 Fmt 4701 Sfmt 4700 removing the total of all large loan programs. For the purposes of this paragraph a program is only considered to be a Federal program providing loans if the value of Federal awards expended for loans within the program comprises fifty percent or more of the total Federal E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations awards expended for the program. A cluster of programs is treated as one program and the value of Federal awards expended under a loan program is determined as described in § 200.502 Basis for determining Federal awards expended. (4) For biennial audits permitted under § 200.504 Frequency of audits, the determination of Type A and Type B programs must be based upon the Federal awards expended during the two-year period. (c) Step two. (1) The auditor must identify Type A programs which are low-risk. In making this determination, the auditor must consider whether the requirements in § 200.519 Criteria for Federal program risk paragraph (c), the results of audit follow-up, or any changes in personnel or systems affecting the program indicate significantly increased risk and preclude the program from being low risk. For a Type A program to be considered low-risk, it must have been audited as a major program in at least one of the two most recent audit periods (in the most recent audit period in the case of a biennial audit), and, in the most recent audit period, the program must have not had: (i) Internal control deficiencies which were identified as material weaknesses in the auditor’s report on internal control for major programs as required under § 200.515 Audit reporting, paragraph (c); (ii) A modified opinion on the program in the auditor’s report on major programs as required under § 200.515 Audit reporting, paragraph (c); or (iii) Known or likely questioned costs that exceed five percent of the total Federal awards expended for the program. (2) Notwithstanding paragraph (c)(1) of this section, OMB may approve a Federal awarding agency’s request that a Type A program may not be considered low risk for a certain recipient. For example, it may be necessary for a large Type A program to be audited as a major program each year at a particular recipient to allow the Federal awarding agency to comply with 31 U.S.C. 3515. The Federal awarding agency must notify the recipient and, if known, the auditor of OMB’s approval at least 180 calendar days prior to the end of the fiscal year to be audited. (d) Step three. (1) The auditor must identify Type B programs which are high-risk using professional judgment and the criteria in § 200.519 Criteria for Federal program risk. However, the auditor is not required to identify more high-risk Type VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 B programs than at least one fourth the number of low-risk Type A programs identified as low-risk under Step 2 (paragraph (c) of this section). Except for known material weakness in internal control or compliance problems as discussed in § 200.519 Criteria for Federal program risk paragraphs (b)(1), (b)(2), and (c)(1), a single criteria in risk would seldom cause a Type B program to be considered high-risk. When identifying which Type B programs to risk assess, the auditor is encouraged to use an approach which provides an opportunity for different high-risk Type B programs to be audited as major over a period of time. (2) The auditor is not expected to perform risk assessments on relatively small Federal programs. Therefore, the auditor is only required to perform risk assessments on Type B programs that exceed twenty-five percent (0.25) of the Type A threshold determined in Step 1 (paragraph (b) of this section). (e) Step four. At a minimum, the auditor must audit all of the following as major programs: (1) All Type A programs not identified as low risk under step two (paragraph (c)(1) of this section). (2) All Type B programs identified as high-risk under step three (paragraph (d) of this section). (3) Such additional programs as may be necessary to comply with the percentage of coverage rule discussed in paragraph (f) of this section. This may require the auditor to audit more programs as major programs than the number of Type A programs. (f) Percentage of coverage rule. If the auditee meets the criteria in § 200.520 Criteria for a low-risk auditee, the auditor need only audit the major programs identified in Step 4 (paragraph (e)(1) and (2) of this section) and such additional Federal programs with Federal awards expended that, in aggregate, all major programs encompass at least 20 percent (0.20) of total Federal awards expended. Otherwise, the auditor must audit the major programs identified in Step 4 (paragraphs (e)(1) and (2) of this section) and such additional Federal programs with Federal awards expended that, in aggregate, all major programs encompass at least 40 percent (0.40) of total Federal awards expended. (g) Documentation of risk. The auditor must include in the audit documentation the risk analysis process used in determining major programs. (h) Auditor’s judgment. When the major program determination was performed and documented in accordance with this Subpart, the auditor’s judgment in applying the risk- PO 00000 Frm 00083 Fmt 4701 Sfmt 4700 78671 based approach to determine major programs must be presumed correct. Challenges by Federal agencies and pass-through entities must only be for clearly improper use of the requirements in this Part. However, Federal agencies and pass-through entities may provide auditors guidance about the risk of a particular Federal program and the auditor must consider this guidance in determining major programs in audits not yet completed. § 200.519 Criteria for Federal program risk. (a) General. The auditor’s determination should be based on an overall evaluation of the risk of noncompliance occurring that could be material to the Federal program. The auditor must consider criteria, such as described in paragraphs (b), (c), and (d) of this section, to identify risk in Federal programs. Also, as part of the risk analysis, the auditor may wish to discuss a particular Federal program with auditee management and the Federal agency or pass-through entity. (b) Current and prior audit experience. (1) Weaknesses in internal control over Federal programs would indicate higher risk. Consideration should be given to the control environment over Federal programs and such factors as the expectation of management’s adherence to Federal statutes, regulations, and the terms and conditions of Federal awards and the competence and experience of personnel who administer the Federal programs. (i) A Federal program administered under multiple internal control structures may have higher risk. When assessing risk in a large single audit, the auditor must consider whether weaknesses are isolated in a single operating unit (e.g., one college campus) or pervasive throughout the entity. (ii) When significant parts of a Federal program are passed through to subrecipients, a weak system for monitoring subrecipients would indicate higher risk. (2) Prior audit findings would indicate higher risk, particularly when the situations identified in the audit findings could have a significant impact on a Federal program or have not been corrected. (3) Federal programs not recently audited as major programs may be of higher risk than Federal programs recently audited as major programs without audit findings. (c) Oversight exercised by Federal agencies and pass-through entities. (1) Oversight exercised by Federal agencies or pass-through entities could E:\FR\FM\26DER3.SGM 26DER3 78672 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations be used to assess risk. For example, recent monitoring or other reviews performed by an oversight entity that disclosed no significant problems would indicate lower risk, whereas monitoring that disclosed significant problems would indicate higher risk. (2) Federal agencies, with the concurrence of OMB, may identify Federal programs that are higher risk. OMB will provide this identification in the compliance supplement. (d) Inherent risk of the Federal program. (1) The nature of a Federal program may indicate risk. Consideration should be given to the complexity of the program and the extent to which the Federal program contracts for goods and services. For example, Federal programs that disburse funds through third party contracts or have eligibility criteria may be of higher risk. Federal programs primarily involving staff payroll costs may have high risk for noncompliance with requirements of § 200.430 Compensation—personal services, but otherwise be at low risk. (2) The phase of a Federal program in its life cycle at the Federal agency may indicate risk. For example, a new Federal program with new or interim regulations may have higher risk than an established program with time-tested regulations. Also, significant changes in Federal programs, statutes, regulations, or the terms and conditions of Federal awards may increase risk. (3) The phase of a Federal program in its life cycle at the auditee may indicate risk. For example, during the first and last years that an auditee participates in a Federal program, the risk may be higher due to start-up or closeout of program activities and staff. (4) Type B programs with larger Federal awards expended would be of higher risk than programs with substantially smaller Federal awards expended. tkelley on DSK3SPTVN1PROD with RULES3 § 200.520 Criteria for a low-risk auditee. An auditee that meets all of the following conditions for each of the preceding two audit periods must qualify as a low-risk auditee and be eligible for reduced audit coverage in accordance with § 200.518 Major program determination. (a) Single audits were performed on an annual basis in accordance with the provisions of this Subpart, including submitting the data collection form and the reporting package to the FAC within the timeframe specified in § 200.512 Report submission. A non-Federal entity that has biennial audits does not qualify as a low-risk auditee. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (b) The auditor’s opinion on whether the financial statements were prepared in accordance with GAAP, or a basis of accounting required by state law, and the auditor’s in relation to opinion on the schedule of expenditures of Federal awards were unmodified. (c) There were no deficiencies in internal control which were identified as material weaknesses under the requirements of GAGAS. (d) The auditor did not report a substantial doubt about the auditee’s ability to continue as a going concern. (e) None of the Federal programs had audit findings from any of the following in either of the preceding two audit periods in which they were classified as Type A programs: (1) Internal control deficiencies that were identified as material weaknesses in the auditor’s report on internal control for major programs as required under § 200.515 Audit reporting, paragraph (c); (2) A modified opinion on a major program in the auditor’s report on major programs as required under § 200.515 Audit reporting, paragraph (c); or (3) Known or likely questioned costs that exceeded five percent of the total Federal awards expended for a Type A program during the audit period. Management Decisions § 200.521 Management decision. (a) General. The management decision must clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action. If the auditee has not completed corrective action, a timetable for follow-up should be given. Prior to issuing the management decision, the Federal agency or pass-through entity may request additional information or documentation from the auditee, including a request for auditor assurance related to the documentation, as a way of mitigating disallowed costs. The management decision should describe any appeal process available to the auditee. While not required, the Federal agency or pass-through entity may also issue a management decision on findings relating to the financial statements which are required to be reported in accordance with GAGAS. (b) Federal agency. As provided in § 200.513 Responsibilities, paragraph (a)(7), the cognizant agency for audit must be responsible for coordinating a management decision for audit findings that affect the programs of more than one Federal agency. As provided in § 200.513 Responsibilities, paragraph PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 (c)(3), a Federal awarding agency is responsible for issuing a management decision for findings that relate to Federal awards it makes to non-Federal entities. (c) Pass-through entity. As provided in § 200.331 Requirements for passthrough entities, paragraph (d), the passthrough entity must be responsible for issuing a management decision for audit findings that relate to Federal awards it makes to subrecipients. (d) Time requirements. The Federal awarding agency or pass-through entity responsible for issuing a management decision must do so within six months of acceptance of the audit report by the FAC. The auditee must initiate and proceed with corrective action as rapidly as possible and corrective action should begin no later than upon receipt of the audit report. (e) Reference numbers. Management decisions must include the reference numbers the auditor assigned to each audit finding in accordance with § 200.516 Audit findings paragraph (c). Appendix I to Part 200—Full Text of Notice of Funding Opportunity The full text of the notice of funding opportunity is organized in sections. The required format outlined in this appendix indicates immediately following the title of each section whether that section is required in every announcement or is a Federal awarding agency option. The format is designed so that similar types of information will appear in the same sections in announcements of different Federal funding opportunities. Toward that end, there is text in each of the following sections to describe the types of information that a Federal awarding agency would include in that section of an actual announcement. A Federal awarding agency that wishes to include information that the format does not specifically discuss may address that subject in whatever section(s) is most appropriate. For example, if a Federal awarding agency chooses to address performance goals in the announcement, it might do so in the funding opportunity description, the application content, or the reporting requirements. Similarly, when this format calls for a type of information to be in a particular section, a Federal awarding agency wishing to address that subject in other sections may elect to repeat the information in those sections or use cross references between the sections (there should be hyperlinks for cross-references in any electronic versions of the announcement). For example, a Federal awarding agency may want to include in Section I information about the types of nonFederal entities who are eligible to apply. The format specifies a standard location for that information in Section III.1 but that does not preclude repeating the information in Section I or creating a cross reference between Sections I and III.1, as long as a potential applicant can find the information E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations quickly and easily from the standard location. The sections of the full text of the announcement are described in the following paragraphs. A. Program Description—Required This section contains the full program description of the funding opportunity. It may be as long as needed to adequately communicate to potential applicants the areas in which funding may be provided. It describes the Federal awarding agency’s funding priorities or the technical or focus areas in which the Federal awarding agency intends to provide assistance. As appropriate, it may include any program history (e.g., whether this is a new program or a new or changed area of program emphasis). This section may communicate indicators of successful projects (e.g., if the program encourages collaborative efforts) and may include examples of projects that have been funded previously. This section also may include other information the Federal awarding agency deems necessary, and must at a minimum include citations for authorizing statutes and regulations for the funding opportunity. tkelley on DSK3SPTVN1PROD with RULES3 B. Federal Award Information—Required This section provides sufficient information to help an applicant make an informed decision about whether to submit a proposal. Relevant information could include the total amount of funding that the Federal awarding agency expects to award through the announcement; the anticipated number of Federal awards; the expected amounts of individual Federal awards (which may be a range); the amount of funding per Federal award, on average, experienced in previous years; and the anticipated start dates and periods of performance for new Federal awards. This section also should address whether applications for renewal or supplementation of existing projects are eligible to compete with applications for new Federal awards. This section also must indicate the type(s) of assistance instrument (e.g., grant, cooperative agreement) that may be awarded if applications are successful. If cooperative agreements may be awarded, this section either should describe the ‘‘substantial involvement’’ that the Federal awarding agency expects to have or should reference where the potential applicant can find that information (e.g., in the funding opportunity description in A. Program Description— Required or Federal award administration information in section D. Application and Submission Information). If procurement contracts also may be awarded, this must be stated. C. Eligibility Information This section addresses the considerations or factors that determine applicant or application eligibility. This includes the eligibility of particular types of applicant organizations, any factors affecting the eligibility of the principal investigator or project director, and any criteria that make particular projects ineligible. Federal agencies should make clear whether an applicant’s failure to meet an eligibility VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 criterion by the time of an application deadline will result in the Federal awarding agency returning the application without review or, even though an application may be reviewed, will preclude the Federal awarding agency from making a Federal award. Key elements to be addressed are: 1. Eligible Applicants—Required. Announcements must clearly identify the types of entities that are eligible to apply. If there are no restrictions on eligibility, this section may simply indicate that all potential applicants are eligible. If there are restrictions on eligibility, it is important to be clear about the specific types of entities that are eligible, not just the types that are ineligible. For example, if the program is limited to nonprofit organizations subject to 26 U.S.C. 501(c)(3) of the tax code (26 U.S.C. 501(c)(3)), the announcement should say so. Similarly, it is better to state explicitly that Native American tribal organizations are eligible than to assume that they can unambiguously infer that from a statement that nonprofit organizations may apply. Eligibility also can be expressed by exception, (e.g., open to all types of domestic applicants other than individuals). This section should refer to any portion of Section IV specifying documentation that must be submitted to support an eligibility determination (e.g., proof of 501(c)(3) status as determined by the Internal Revenue Service or an authorizing tribal resolution). To the extent that any funding restriction in Section IV.5 could affect the eligibility of an applicant or project, the announcement must either restate that restriction in this section or provide a cross-reference to its description in Section IV.5. 2. Cost Sharing or Matching—Required. Announcements must state whether there is required cost sharing, matching, or cost participation without which an application would be ineligible (if cost sharing is not required, the announcement must explicitly say so). Required cost sharing may be a certain percentage or amount, or may be in the form of contributions of specified items or activities (e.g., provision of equipment). It is important that the announcement be clear about any restrictions on the types of cost (e.g., in-kind contributions) that are acceptable as cost sharing. Cost sharing as an eligibility criterion includes requirements based in statute or regulation, as described in § 200.306 Cost sharing or matching of this Part. This section should refer to the appropriate portion(s) of section D. Application and Submission Information stating any pre-award requirements for submission of letters or other documentation to verify commitments to meet cost-sharing requirements if a Federal award is made. 3. Other—Required, if applicable. If there are other eligibility criteria (i.e., criteria that have the effect of making an application or project ineligible for Federal awards, whether referred to as ‘‘responsiveness’’ criteria, ‘‘gono go’’ criteria, ‘‘threshold’’ criteria, or in other ways), must be clearly stated and must include a reference to the regulation of requirement that describes the restriction, as applicable. For example, if entities that have been found to be in violation of a particular Federal statute are ineligible, it is important PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 78673 to say so. This section must also state any limit on the number of applications an applicant may submit under the announcement and make clear whether the limitation is on the submitting organization, individual investigator/program director, or both. This section should also address any eligibility criteria for beneficiaries or for program participants other than Federal award recipients. D. Application and Submission Information 1. Address to Request Application Package—Required. Potential applicants must be told how to get application forms, kits, or other materials needed to apply (if this announcement contains everything needed, this section need only say so). An Internet address where the materials can be accessed is acceptable. However, since highspeed Internet access is not yet universally available for downloading documents, and applicants may have additional accessibility requirements, there also should be a way for potential applicants to request paper copies of materials, such as a U.S. Postal Service mailing address, telephone or FAX number, Telephone Device for the Deaf (TDD), Text Telephone (TTY) number, and/or Federal Information Relay Service (FIRS) number. 2. Content and Form of Application Submission—Required. This section must identify the required content of an application and the forms or formats that an applicant must use to submit it. If any requirements are stated elsewhere because they are general requirements that apply to multiple programs or funding opportunities, this section should refer to where those requirements may be found. This section also should include required forms or formats as part of the announcement or state where the applicant may obtain them. This section should specifically address content and form or format requirements for: i. Pre-applications, letters of intent, or white papers required or encouraged (see Section IV.3), including any limitations on the number of pages or other formatting requirements similar to those for full applications. ii. The application as a whole. For all submissions, this would include any limitations on the number of pages, font size and typeface, margins, paper size, number of copies, and sequence or assembly requirements. If electronic submission is permitted or required, this could include special requirements for formatting or signatures. iii. Component pieces of the application (e.g., if all copies of the application must bear original signatures on the face page or the program narrative may not exceed 10 pages). This includes any pieces that may be submitted separately by third parties (e.g., references or letters confirming commitments from third parties that will be contributing a portion of any required cost sharing). iv. Information that successful applicants must submit after notification of intent to make a Federal award, but prior to a Federal award. This could include evidence of compliance with requirements relating to human subjects or information needed to comply with the National Environmental Policy Act (NEPA) (42 U.S.C. 4321–4370h). E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78674 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 3. Dun and Bradstreet Universal Numbering System (DUNS) Number and System for Award Management (SAM)— Required. This paragraph must state clearly that each applicant (unless the applicant is an individual or Federal awarding agency that is excepted from those requirements under 2 CFR § 25.110(b) or (c), or has an exception approved by the Federal awarding agency under 2 CFR § 25.110(d)) is required to: (i) Be registered in SAM before submitting its application; (ii) provide a valid DUNS number in its application; and (iii) continue to maintain an active SAM registration with current information at all times during which it has an active Federal award or an application or plan under consideration by a Federal awarding agency. It also must state that the Federal awarding agency may not make a Federal award to an applicant until the applicant has complied with all applicable DUNS and SAM requirements and, if an applicant has not fully complied with the requirements by the time the Federal awarding agency is ready to make a Federal award, the Federal awarding agency may determine that the applicant is not qualified to receive a Federal award and use that determination as a basis for making a Federal award to another applicant. 4. Submission Dates and Times—Required. Announcements must identify due dates and times for all submissions. This includes not only the full applications but also any preliminary submissions (e.g., letters of intent, white papers, or pre-applications). It also includes any other submissions of information before Federal award that are separate from the full application. If the funding opportunity is a general announcement that is open for a period of time with no specific due dates for applications, this section should say so. Note that the information on dates that is included in this section also must appear with other overview information in a location preceding the full text of the announcement (see § 200.203 Notices of funding opportunities of this Part). Each type of submission should be designated as encouraged or required and, if required, any deadline date (or dates, if the Federal awarding agency plans more than one cycle of application submission, review, and Federal award under the announcement) should be specified. The announcement must state (or provide a reference to another document that states): i. Any deadline in terms of a date and local time. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. ii. What the deadline means (e.g., whether it is the date and time by which the Federal awarding agency must receive the application, the date by which the application must be postmarked, or something else) and how that depends, if at all, on the submission method (e.g., mail, electronic, or personal/courier delivery). iii. The effect of missing a deadline (e.g., whether late applications are neither reviewed nor considered or are reviewed and considered under some circumstances). iv. How the receiving Federal office determines whether an application or pre- VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 application has been submitted before the deadline. This includes the form of acceptable proof of mailing or systemgenerated documentation of receipt date and time. This section also may indicate whether, when, and in what form the applicant will receive an acknowledgement of receipt. This information should be displayed in ways that will be easy to understand and use. It can be difficult to extract all needed information from narrative paragraphs, even when they are well written. A tabular form for providing a summary of the information may help applicants for some programs and give them what effectively could be a checklist to verify the completeness of their application package before submission. 5. Intergovernmental Review—Required, if applicable. If the funding opportunity is subject to Executive Order 12372, ‘‘Intergovernmental Review of Federal Programs,’’ the notice must say so. In alerting applicants that they must contact their state’s Single Point of Contact (SPOC) to find out about and comply with the state’s process under Executive Order 12372, it may be useful to inform potential applicants that the names and addresses of the SPOCs are listed in the Office of Management and Budget’s Web site. www.whitehouse.gov/omb/grants/ spoc.html. 6. Funding Restrictions—Required. Notices must include information on funding restrictions in order to allow an applicant to develop an application and budget consistent with program requirements. Examples are whether construction is an allowable activity, if there are any limitations on direct costs such as foreign travel or equipment purchases, and if there are any limits on indirect costs (or facilities and administrative costs). Applicants must be advised if Federal awards will not allow reimbursement of preFederal award costs. 7. Other Submission Requirements— Required. This section must address any other submission requirements not included in the other paragraphs of this section. This might include the format of submission, i.e., paper or electronic, for each type of required submission. Applicants should not be required to submit in more than one format and this section should indicate whether they may choose whether to submit applications in hard copy or electronically, may submit only in hard copy, or may submit only electronically. This section also must indicate where applications (and any pre-applications) must be submitted if sent by postal mail, electronic means, or hand-delivery. For postal mail submission, this must include the name of an office, official, individual or function (e.g., application receipt center) and a complete mailing address. For electronic submission, this must include the URL or email address; whether a password(s) is required; whether particular software or other electronic capabilities are required; what to do in the event of system problems and a point of contact who will be available in the event the applicant experiences technical difficulties.1 1 With respect to electronic methods for providing information about funding opportunities or PO 00000 Frm 00086 Fmt 4701 Sfmt 4700 E. Application Review Information 1. Criteria—Required. This section must address the criteria that the Federal awarding agency will use to evaluate applications. This includes the merit and other review criteria that evaluators will use to judge applications, including any statutory, regulatory, or other preferences (e.g., minority status or Native American tribal preferences) that will be applied in the review process. These criteria are distinct from eligibility criteria that are addressed before an application is accepted for review and any program policy or other factors that are applied during the selection process, after the review process is completed. The intent is to make the application process transparent so applicants can make informed decisions when preparing their applications to maximize fairness of the process. The announcement should clearly describe all criteria, including any subcriteria. If criteria vary in importance, the announcement should specify the relative percentages, weights, or other means used to distinguish among them. For statutory, regulatory, or other preferences, the announcement should provide a detailed explanation of those preferences with an explicit indication of their effect (e.g., whether they result in additional points being assigned). If an applicant’s proposed cost sharing will be considered in the review process (as opposed to being an eligibility criterion described in Section III.2), the announcement must specifically address how it will be considered (e.g., to assign a certain number of additional points to applicants who offer cost sharing, or to break ties among applications with equivalent scores after evaluation against all other factors). If cost sharing will not be considered in the evaluation, the announcement should say so, so that there is no ambiguity for potential applicants. Vague statements that cost sharing is encouraged, without clarification as to what that means, are unhelpful to applicants. It also is important that the announcement be clear about any restrictions on the types of cost (e.g., in-kind contributions) that are acceptable as cost sharing. 2. Review and Selection Process— Required. This section may vary in the level of detail provided. The announcement must list any program policy or other factors or elements, other than merit criteria, that the selecting official may use in selecting applications for Federal award (e.g., geographical dispersion, program balance, or diversity). The Federal awarding agency may also include other appropriate details. For example, this section may indicate who is responsible for evaluation against the merit criteria (e.g., peers external to the Federal awarding agency or Federal awarding agency personnel) and/or who makes the final selections for Federal awards. If there is a multi-phase review process (e.g., an external panel advising internal Federal awarding agency personnel who make final accepting applicants’ submissions of information, each Federal awarding agency is responsible for compliance with Section 508 of the Rehabilitation Act of 1973 (29 U.S.C. 794d). E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 recommendations to the deciding official), the announcement may describe the phases. It also may include: the number of people on an evaluation panel and how it operates, the way reviewers are selected, reviewer qualifications, and the way that conflicts of interest are avoided. With respect to electronic methods for providing information about funding opportunities or accepting applicants’ submissions of information, each Federal awarding agency is responsible for compliance with Section 508 of the Rehabilitation Act of 1973 (29 U.S.C. 794d). In addition, if the Federal awarding agency permits applicants to nominate suggested reviewers of their applications or suggest those they feel may be inappropriate due to a conflict of interest, that information should be included in this section. 3. Anticipated Announcement and Federal Award Dates—Optional. This section is intended to provide applicants with information they can use for planning purposes. If there is a single application deadline followed by the simultaneous review of all applications, the Federal awarding agency can include in this section information about the anticipated dates for announcing or notifying successful and unsuccessful applicants and for having Federal awards in place. If applications are received and evaluated on a ‘‘rolling’’ basis at different times during an extended period, it may be appropriate to give applicants an estimate of the time needed to process an application and notify the applicant of the Federal awarding agency’s decision. F. Federal Award Administration Information 1. Federal Award Notices—Required. This section must address what a successful applicant can expect to receive following selection. If the Federal awarding agency’s practice is to provide a separate notice stating that an application has been selected before it actually makes the Federal award, this section would be the place to indicate that the letter is not an authorization to begin performance (to the extent that it allows charging to Federal awards of pre-award costs at the non-Federal entity’s own risk). This section should indicate that the notice of Federal award signed by the grants officer (or equivalent) is the authorizing document, and whether it is provided through postal mail or by electronic means and to whom. It also may address the timing, form, and content of notifications to unsuccessful applicants. See also § 200.210 Information contained in a Federal award. 2. Administrative and National Policy Requirements—Required. This section must identify the usual administrative and national policy requirements the Federal awarding agency’s Federal awards may include. Providing this information lets a potential applicant identify any requirements with which it would have difficulty complying if its application is successful. In those cases, early notification about the requirements allows the potential applicant to decide not to apply or to take needed actions before receiving the Federal award. The announcement need not include all of the terms and conditions of the Federal VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 award, but may refer to a document (with information about how to obtain it) or Internet site where applicants can see the terms and conditions. If this funding opportunity will lead to Federal awards with some special terms and conditions that differ from the Federal awarding agency’s usual (sometimes called ‘‘general’’) terms and conditions, this section should highlight those special terms and conditions. Doing so will alert applicants that have received Federal awards from the Federal awarding agency previously and might not otherwise expect different terms and conditions. For the same reason, the announcement should inform potential applicants about special requirements that could apply to particular Federal awards after the review of applications and other information, based on the particular circumstances of the effort to be supported (e.g., if human subjects were to be involved or if some situations may justify special terms on intellectual property, data sharing or security requirements). 3. Reporting—Required. This section must include general information about the type (e.g., financial or performance), frequency, and means of submission (paper or electronic) of post-Federal award reporting requirements. Highlight any special reporting requirements for Federal awards under this funding opportunity that differ (e.g., by report type, frequency, form/format, or circumstances for use) from what the Federal awarding agency’s Federal awards usually require. G. Federal Awarding Agency Contact(s)— Required The announcement must give potential applicants a point(s) of contact for answering questions or helping with problems while the funding opportunity is open. The intent of this requirement is to be as helpful as possible to potential applicants, so the Federal awarding agency should consider approaches such as giving: i. Points of contact who may be reached in multiple ways (e.g., by telephone, FAX, and/ or email, as well as regular mail). ii. A fax or email address that multiple people access, so that someone will respond even if others are unexpectedly absent during critical periods. iii. Different contacts for distinct kinds of help (e.g., one for questions of programmatic content and a second for administrative questions). H. Other Information—Optional This section may include any additional information that will assist a potential applicant. For example, the section might: i. Indicate whether this is a new program or a one-time initiative. ii. Mention related programs or other upcoming or ongoing Federal awarding agency funding opportunities for similar activities. iii. Include current Internet addresses for Federal awarding agency Web sites that may be useful to an applicant in understanding the program. iv. Alert applicants to the need to identify proprietary information and inform them about the way the Federal awarding agency will handle it. PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 78675 v. Include certain routine notices to applicants (e.g., that the Federal government is not obligated to make any Federal award as a result of the announcement or that only grants officers can bind the Federal government to the expenditure of funds). Appendix II to Part 200—Contract Provisions for Non-Federal Entity Contracts Under Federal Awards In addition to other provisions required by the Federal agency or non-Federal entity, all contracts made by the non-Federal entity under the Federal award must contain provisions covering the following, as applicable. (A) Contracts for more than the simplified acquisition threshold currently set at $150,000, which is the inflation adjusted amount determined by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) as authorized by 41 U.S.C. 1908, must address administrative, contractual, or legal remedies in instances where contractors violate or breach contract terms, and provide for such sanctions and penalties as appropriate. (B) All contracts in excess of $10,000 must address termination for cause and for convenience by the non-Federal entity including the manner by which it will be effected and the basis for settlement. (C) Equal Employment Opportunity. Except as otherwise provided under 41 CFR Part 60, all contracts that meet the definition of ‘‘federally assisted construction contract’’ in 41 CFR Part 60–1.3 must include the equal opportunity clause provided under 41 CFR 60–1.4(b), in accordance with Executive Order 11246, ‘‘Equal Employment Opportunity’’ (30 FR 12319, 12935, 3 CFR Part, 1964–1965 Comp., p. 339), as amended by Executive Order 11375, ‘‘Amending Executive Order 11246 Relating to Equal Employment Opportunity,’’ and implementing regulations at 41 CFR part 60, ‘‘Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor.’’ (D) Davis-Bacon Act, as amended (40 U.S.C. 3141–3148). When required by Federal program legislation, all prime construction contracts in excess of $2,000 awarded by non-Federal entities must include a provision for compliance with the Davis-Bacon Act (40 U.S.C. 3141–3144, and 3146–3148) as supplemented by Department of Labor regulations (29 CFR Part 5, ‘‘Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction’’). In accordance with the statute, contractors must be required to pay wages to laborers and mechanics at a rate not less than the prevailing wages specified in a wage determination made by the Secretary of Labor. In addition, contractors must be required to pay wages not less than once a week. The non-Federal entity must place a copy of the current prevailing wage determination issued by the Department of Labor in each solicitation. The decision to award a contract or subcontract must be conditioned upon the acceptance of the wage determination. The non-Federal entity must report all suspected or reported violations to E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78676 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations the Federal awarding agency. The contracts must also include a provision for compliance with the Copeland ‘‘Anti-Kickback’’ Act (40 U.S.C. 3145), as supplemented by Department of Labor regulations (29 CFR Part 3, ‘‘Contractors and Subcontractors on Public Building or Public Work Financed in Whole or in Part by Loans or Grants from the United States’’). The Act provides that each contractor or subrecipient must be prohibited from inducing, by any means, any person employed in the construction, completion, or repair of public work, to give up any part of the compensation to which he or she is otherwise entitled. The non-Federal entity must report all suspected or reported violations to the Federal awarding agency. (E) Contract Work Hours and Safety Standards Act (40 U.S.C. 3701–3708). Where applicable, all contracts awarded by the nonFederal entity in excess of $100,000 that involve the employment of mechanics or laborers must include a provision for compliance with 40 U.S.C. 3702 and 3704, as supplemented by Department of Labor regulations (29 CFR Part 5). Under 40 U.S.C. 3702 of the Act, each contractor must be required to compute the wages of every mechanic and laborer on the basis of a standard work week of 40 hours. Work in excess of the standard work week is permissible provided that the worker is compensated at a rate of not less than one and a half times the basic rate of pay for all hours worked in excess of 40 hours in the work week. The requirements of 40 U.S.C. 3704 are applicable to construction work and provide that no laborer or mechanic must be required to work in surroundings or under working conditions which are unsanitary, hazardous or dangerous. These requirements do not apply to the purchases of supplies or materials or articles ordinarily available on the open market, or contracts for transportation or transmission of intelligence. (F) Rights to Inventions Made Under a Contract or Agreement. If the Federal award meets the definition of ‘‘funding agreement’’ under 37 CFR § 401.2 (a) and the recipient or subrecipient wishes to enter into a contract with a small business firm or nonprofit organization regarding the substitution of parties, assignment or performance of experimental, developmental, or research work under that ‘‘funding agreement,’’ the recipient or subrecipient must comply with the requirements of 37 CFR Part 401, ‘‘Rights to Inventions Made by Nonprofit Organizations and Small Business Firms Under Government Grants, Contracts and Cooperative Agreements,’’ and any implementing regulations issued by the awarding agency. (G) Clean Air Act (42 U.S.C. 7401–7671q.) and the Federal Water Pollution Control Act (33 U.S.C. 1251–1387), as amended— Contracts and subgrants of amounts in excess of $150,000 must contain a provision that requires the non-Federal award to agree to comply with all applicable standards, orders or regulations issued pursuant to the Clean Air Act (42 U.S.C. 7401–7671q) and the Federal Water Pollution Control Act as amended (33 U.S.C. 1251–1387). Violations must be reported to the Federal awarding agency and the Regional Office of the Environmental Protection Agency (EPA). VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 (H) Mandatory standards and policies relating to energy efficiency which are contained in the state energy conservation plan issued in compliance with the Energy Policy and Conservation Act (42 U.S.C. 6201). (I) Debarment and Suspension (Executive Orders 12549 and 12689)—A contract award (see 2 CFR 180.220) must not be made to parties listed on the governmentwide Excluded Parties List System in the System for Award Management (SAM), in accordance with the OMB guidelines at 2 CFR 180 that implement Executive Orders 12549 (3 CFR Part 1986 Comp., p. 189) and 12689 (3 CFR Part 1989 Comp., p. 235), ‘‘Debarment and Suspension.’’ The Excluded Parties List System in SAM contains the names of parties debarred, suspended, or otherwise excluded by agencies, as well as parties declared ineligible under statutory or regulatory authority other than Executive Order 12549. (J) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)—Contractors that apply or bid for an award of $100,000 or more must file the required certification. Each tier certifies to the tier above that it will not and has not used Federal appropriated funds to pay any person or organization for influencing or attempting to influence an officer or employee of any agency, a member of Congress, officer or employee of Congress, or an employee of a member of Congress in connection with obtaining any Federal contract, grant or any other award covered by 31 U.S.C. 1352. Each tier must also disclose any lobbying with non-Federal funds that takes place in connection with obtaining any Federal award. Such disclosures are forwarded from tier to tier up to the nonFederal award. (K) See § 200.322 Procurement of recovered materials. Appendix III to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs) A. General This appendix provides criteria for identifying and computing indirect (or indirect (F&A)) rates at IHEs (institutions). Indirect (F&A) costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. See subsection B.1, Definition of Facilities and Administration, for a discussion of the components of indirect (F&A) costs. 1. Major Functions of an Institution Refers to instruction, organized research, other sponsored activities and other institutional activities as defined in this section: a. Instruction means the teaching and training activities of an institution. Except for research training as provided in subsection b, this term includes all teaching and training activities, whether they are offered for credits toward a degree or certificate or on a non- PO 00000 Frm 00088 Fmt 4701 Sfmt 4700 credit basis, and whether they are offered through regular academic departments or separate divisions, such as a summer school division or an extension division. Also considered part of this major function are departmental research, and, where agreed to, university research. (1) Sponsored instruction and training means specific instructional or training activity established by grant, contract, or cooperative agreement. For purposes of the cost principles, this activity may be considered a major function even though an institution’s accounting treatment may include it in the instruction function. (2) Departmental research means research, development and scholarly activities that are not organized research and, consequently, are not separately budgeted and accounted for. Departmental research, for purposes of this document, is not considered as a major function, but as a part of the instruction function of the institution. b. Organized research means all research and development activities of an institution that are separately budgeted and accounted for. It includes: (1) Sponsored research means all research and development activities that are sponsored by Federal and non-Federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function. (2) University research means all research and development activities that are separately budgeted and accounted for by the institution under an internal application of institutional funds. University research, for purposes of this document, must be combined with sponsored research under the function of organized research. c. Other sponsored activities means programs and projects financed by Federal and non-Federal agencies and organizations which involve the performance of work other than instruction and organized research. Examples of such programs and projects are health service projects and community service programs. However, when any of these activities are undertaken by the institution without outside support, they may be classified as other institutional activities. d. Other institutional activities means all activities of an institution except for instruction, departmental research, organized research, and other sponsored activities, as defined in this section; indirect (F&A) cost activities identified in this Appendix paragraph B, Identification and assignment of indirect (F&A) costs; and specialized services facilities described in § 200.468 Specialized service facilities of this Part. Examples of other institutional activities include operation of residence halls, dining halls, hospitals and clinics, student unions, intercollegiate athletics, bookstores, faculty housing, student apartments, guest houses, chapels, theaters, public museums, and other similar auxiliary enterprises. This definition also includes any other categories of activities, costs of which are ‘‘unallowable’’ E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 to Federal awards, unless otherwise indicated in an award. 2. Criteria for Distribution a. Base period. A base period for distribution of indirect (F&A) costs is the period during which the costs are incurred. The base period normally should coincide with the fiscal year established by the institution, but in any event the base period should be so selected as to avoid inequities in the distribution of costs. b. Need for cost groupings. The overall objective of the indirect (F&A) cost allocation process is to distribute the indirect (F&A) costs described in Section B, Identification and assignment of indirect (F&A) costs, to the major functions of the institution in proportions reasonably consistent with the nature and extent of their use of the institution’s resources. In order to achieve this objective, it may be necessary to provide for selective distribution by establishing separate groupings of cost within one or more of the indirect (F&A) cost categories referred to in subsection B.1, Definition of Facilities and Administration. In general, the cost groupings established within a category should constitute, in each case, a pool of those items of expense that are considered to be of like nature in terms of their relative contribution to (or degree of remoteness from) the particular cost objectives to which distribution is appropriate. Cost groupings should be established considering the general guides provided in subsection c of this section. Each such pool or cost grouping should then be distributed individually to the related cost objectives, using the distribution base or method most appropriate in light of the guidelines set forth in subsection d of this section. c. General considerations on cost groupings. The extent to which separate cost groupings and selective distribution would be appropriate at an institution is a matter of judgment to be determined on a case-by-case basis. Typical situations which may warrant the establishment of two or more separate cost groupings (based on account classification or analysis) within an indirect (F&A) cost category include but are not limited to the following: (1) If certain items or categories of expense relate solely to one of the major functions of the institution or to less than all functions, such expenses should be set aside as a separate cost grouping for direct assignment or selective allocation in accordance with the guides provided in subsections b and d. (2) If any types of expense ordinarily treated as general administration or departmental administration are charged to Federal awards as direct costs, expenses applicable to other activities of the institution when incurred for the same purposes in like circumstances must, through separate cost groupings, be excluded from the indirect (F&A) costs allocable to those Federal awards and included in the direct cost of other activities for cost allocation purposes. (3) If it is determined that certain expenses are for the support of a service unit or facility whose output is susceptible of measurement on a workload or other quantitative basis, VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 such expenses should be set aside as a separate cost grouping for distribution on such basis to organized research, instructional, and other activities at the institution or within the department. (4) If activities provide their own purchasing, personnel administration, building maintenance or similar service, the distribution of general administration and general expenses, or operation and maintenance expenses to such activities should be accomplished through cost groupings which include only that portion of central indirect (F&A) costs (such as for overall management) which are properly allocable to such activities. (5) If the institution elects to treat fringe benefits as indirect (F&A) charges, such costs should be set aside as a separate cost grouping for selective distribution to related cost objectives. (6) The number of separate cost groupings within a category should be held within practical limits, after taking into consideration the materiality of the amounts involved and the degree of precision attainable through less selective methods of distribution. d. Selection of distribution method. (1) Actual conditions must be taken into account in selecting the method or base to be used in distributing individual cost groupings. The essential consideration in selecting a base is that it be the one best suited for assigning the pool of costs to cost objectives in accordance with benefits derived; with a traceable cause-and-effect relationship; or with logic and reason, where neither benefit nor a cause-and-effect relationship is determinable. (2) If a cost grouping can be identified directly with the cost objective benefitted, it should be assigned to that cost objective. (3) If the expenses in a cost grouping are more general in nature, the distribution may be based on a cost analysis study which results in an equitable distribution of the costs. Such cost analysis studies may take into consideration weighting factors, population, or space occupied if appropriate. Cost analysis studies, however, must (a) be appropriately documented in sufficient detail for subsequent review by the cognizant agency for indirect costs, (b) distribute the costs to the related cost objectives in accordance with the relative benefits derived, (c) be statistically sound, (d) be performed specifically at the institution at which the results are to be used, and (e) be reviewed periodically, but not less frequently than rate negotiations, updated if necessary, and used consistently. Any assumptions made in the study must be stated and explained. The use of cost analysis studies and periodic changes in the method of cost distribution must be fully justified. (4) If a cost analysis study is not performed, or if the study does not result in an equitable distribution of the costs, the distribution must be made in accordance with the appropriate base cited in Section B, Identification and assignment of indirect (F&A) costs, unless one of the following conditions is met: (a) It can be demonstrated that the use of a different base would result in a more PO 00000 Frm 00089 Fmt 4701 Sfmt 4700 78677 equitable allocation of the costs, or that a more readily available base would not increase the costs charged to Federal awards, or (b) The institution qualifies for, and elects to use, the simplified method for computing indirect (F&A) cost rates described in Section D, Simplified method for small institutions. (5) Notwithstanding subsection (3), effective July 1, 1998, a cost analysis or base other than that in Section B must not be used to distribute utility or student services costs. Instead, subsections B.4.c Operation and maintenance expenses, may be used in the recovery of utility costs. e. Order of distribution. (1) Indirect (F&A) costs are the broad categories of costs discussed in Section B.1, Definitions of Facilities and Administration (2) Depreciation, interest expenses, operation and maintenance expenses, and general administrative and general expenses should be allocated in that order to the remaining indirect (F&A) cost categories as well as to the major functions and specialized service facilities of the institution. Other cost categories may be allocated in the order determined to be most appropriate by the institutions. When cross allocation of costs is made as provided in subsection (3), this order of allocation does not apply. (3) Normally an indirect (F&A) cost category will be considered closed once it has been allocated to other cost objectives, and costs may not be subsequently allocated to it. However, a cross allocation of costs between two or more indirect (F&A) cost categories may be used if such allocation will result in a more equitable allocation of costs. If a cross allocation is used, an appropriate modification to the composition of the indirect (F&A) cost categories described in Section B is required. B. Identification and Assignment of Indirect (F&A) Costs 1. Definition of Facilities and Administration See § 200.414 Indirect (F&A) costs which provides the basis for this indirect cost requirements. 2. Depreciation a. The expenses under this heading are the portion of the costs of the institution’s buildings, capital improvements to land and buildings, and equipment which are computed in accordance with § 200.436 Depreciation. b. In the absence of the alternatives provided for in Section A.2.d, Selection of distribution method, the expenses included in this category must be allocated in the following manner: (1) Depreciation on buildings used exclusively in the conduct of a single function, and on capital improvements and equipment used in such buildings, must be assigned to that function. (2) Depreciation on buildings used for more than one function, and on capital improvements and equipment used in such buildings, must be allocated to the individual functions performed in each building on the basis of usable square feet of space, excluding common areas such as hallways, stairwells, and rest rooms. E:\FR\FM\26DER3.SGM 26DER3 78678 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations (3) Depreciation on buildings, capital improvements and equipment related to space (e.g., individual rooms, laboratories) used jointly by more than one function (as determined by the users of the space) must be treated as follows. The cost of each jointly used unit of space must be allocated to benefitting functions on the basis of: (a) The employee full-time equivalents (FTEs) or salaries and wages of those individual functions benefitting from the use of that space; or (b) Institution-wide employee FTEs or salaries and wages applicable to the benefitting major functions (see Section A.1) of the institution. (4) Depreciation on certain capital improvements to land, such as paved parking areas, fences, sidewalks, and the like, not included in the cost of buildings, must be allocated to user categories of students and employees on a full-time equivalent basis. The amount allocated to the student category must be assigned to the instruction function of the institution. The amount allocated to the employee category must be further allocated to the major functions of the institution in proportion to the salaries and wages of all employees applicable to those functions. tkelley on DSK3SPTVN1PROD with RULES3 3. Interest Interest on debt associated with certain buildings, equipment and capital improvements, as defined in § 200.449 Interest, must be classified as an expenditure under the category Facilities. These costs must be allocated in the same manner as the depreciation on the buildings, equipment and capital improvements to which the interest relates. 4. Operation and Maintenance Expenses a. The expenses under this heading are those that have been incurred for the administration, supervision, operation, maintenance, preservation, and protection of the institution’s physical plant. They include expenses normally incurred for such items as janitorial and utility services; repairs and ordinary or normal alterations of buildings, furniture and equipment; care of grounds; maintenance and operation of buildings and other plant facilities; security; earthquake and disaster preparedness; environmental safety; hazardous waste disposal; property, liability and all other insurance relating to property; space and capital leasing; facility planning and management; and central receiving. The operation and maintenance expense category should also include its allocable share of fringe benefit costs, depreciation, and interest costs. b. In the absence of the alternatives provided for in Section A.2.d, the expenses included in this category must be allocated in the same manner as described in subsection 2.b for depreciation. c. A utility cost adjustment of up to 1.3 percentage points may be included in the negotiated indirect cost rate of the IHE for organized research, per the computation alternatives in paragraphs (c)(1) and (2) of this section: (1) Where space is devoted to a single function and metering allows unambiguous VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 measurement of usage related to that space, costs must be assigned to the function located in that space. (2) Where space is allocated to different functions and metering does not allow unambiguous measurement of usage by function, costs must be allocated as follows: (i) Utilities costs should be apportioned to functions in the same manner as depreciation, based on the calculated difference between the site or building actual square footage for monitored research laboratory space (site, building, floor, or room), and a separate calculation prepared by the IHE using the ‘‘effective square footage’’ described in subsection (c)(2)(ii) of this section. (ii) ‘‘Effective square footage’’ allocated to research laboratory space must be calculated as the actual square footage times the relative energy utilization index (REUI) posted on the OMB Web site at the time of a rate determination. A. This index is the ratio of a laboratory energy use index (lab EUI) to the corresponding index for overall average college or university space (college EUI). B. In July 2012, values for these two indices (taken respectively from the Lawrence Berkeley Laboratory ‘‘Labs for the 21st Century’’ benchmarking tool http:// labs21benchmarking.lbl.gov/ CompareData.php and the US Department of Energy ‘‘Buildings Energy Databook’’ and http://buildingsdatabook.eren.doe.gov/ CBECS.aspx) were 310 kBtu/sq ft-yr. and 155 kBtu/sq ft-yr., so that the adjustment ratio is 2.0 by this methodology. To retain currency, OMB will adjust the EUI numbers from time to time (no more often than annually nor less often than every 5 years), using reliable and publicly disclosed data. Current values of both the EUIs and the REUI will be posted on the OMB Web site. 5. General Administration and General Expenses a. The expenses under this heading are those that have been incurred for the general executive and administrative offices of educational institutions and other expenses of a general character which do not relate solely to any major function of the institution; i.e., solely to (1) instruction, (2) organized research, (3) other sponsored activities, or (4) other institutional activities. The general administration and general expense category should also include its allocable share of fringe benefit costs, operation and maintenance expense, depreciation, and interest costs. Examples of general administration and general expenses include: those expenses incurred by administrative offices that serve the entire university system of which the institution is a part; central offices of the institution such as the President’s or Chancellor’s office, the offices for institution-wide financial management, business services, budget and planning, personnel management, and safety and risk management; the office of the General Counsel; and the operations of the central administrative management information systems. General administration and general expenses must not include expenses incurred within non-university- PO 00000 Frm 00090 Fmt 4701 Sfmt 4700 wide deans’ offices, academic departments, organized research units, or similar organizational units. (See subsection 6, Departmental administration expenses.) b. In the absence of the alternatives provided for in Section A.2.d, the expenses included in this category must be grouped first according to common major functions of the institution to which they render services or provide benefits. The aggregate expenses of each group must then be allocated to serviced or benefitted functions on the modified total cost basis. Modified total costs consist of the same elements as those in Section C.2. When an activity included in this indirect (F&A) cost category provides a service or product to another institution or organization, an appropriate adjustment must be made to either the expenses or the basis of allocation or both, to assure a proper allocation of costs. 6. Departmental Administration Expenses a. The expenses under this heading are those that have been incurred for administrative and supporting services that benefit common or joint departmental activities or objectives in academic deans’ offices, academic departments and divisions, and organized research units. Organized research units include such units as institutes, study centers, and research centers. Departmental administration expenses are subject to the following limitations. (1) Academic deans’ offices. Salaries and operating expenses are limited to those attributable to administrative functions. (2) Academic departments: (a) Salaries and fringe benefits attributable to the administrative work (including bid and proposal preparation) of faculty (including department heads) and other professional personnel conducting research and/or instruction, must be allowed at a rate of 3.6 percent of modified total direct costs. This category does not include professional business or professional administrative officers. This allowance must be added to the computation of the indirect (F&A) cost rate for major functions in Section C, Determination and application of indirect (F&A) cost rate or rates; the expenses covered by the allowance must be excluded from the departmental administration cost pool. No documentation is required to support this allowance. (b) Other administrative and supporting expenses incurred within academic departments are allowable provided they are treated consistently in like circumstances. This would include expenses such as the salaries of secretarial and clerical staffs, the salaries of administrative officers and assistants, travel, office supplies, stockrooms, and the like. (3) Other fringe benefit costs applicable to the salaries and wages included in subsections (1) and (2) are allowable, as well as an appropriate share of general administration and general expenses, operation and maintenance expenses, and depreciation. (4) Federal agencies may authorize reimbursement of additional costs for department heads and faculty only in E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 exceptional cases where an institution can demonstrate undue hardship or detriment to project performance. b. The following guidelines apply to the determination of departmental administrative costs as direct or indirect (F&A) costs. (1) In developing the departmental administration cost pool, special care should be exercised to ensure that costs incurred for the same purpose in like circumstances are treated consistently as either direct or indirect (F&A) costs. For example, salaries of technical staff, laboratory supplies (e.g., chemicals), telephone toll charges, animals, animal care costs, computer costs, travel costs, and specialized shop costs must be treated as direct costs wherever identifiable to a particular cost objective. Direct charging of these costs may be accomplished through specific identification of individual costs to benefitting cost objectives, or through recharge centers or specialized service facilities, as appropriate under the circumstances. See §§ 200.413 Direct costs, paragraph (c) and 200.468 Specialized service facilities. (2) Items such as office supplies, postage, local telephone costs, and memberships must normally be treated as indirect (F&A) costs. c. In the absence of the alternatives provided for in Section A.2.d, the expenses included in this category must be allocated as follows: (1) The administrative expenses of the dean’s office of each college and school must be allocated to the academic departments within that college or school on the modified total cost basis. (2) The administrative expenses of each academic department, and the department’s share of the expenses allocated in subsection (1) must be allocated to the appropriate functions of the department on the modified total cost basis. 7. Sponsored Projects Administration a. The expenses under this heading are limited to those incurred by a separate organization(s) established primarily to administer sponsored projects, including such functions as grant and contract administration (Federal and non-Federal), special security, purchasing, personnel, administration, and editing and publishing of research and other reports. They include the salaries and expenses of the head of such organization, assistants, and immediate staff, together with the salaries and expenses of personnel engaged in supporting activities maintained by the organization, such as stock rooms, print shops, and the like. This category also includes an allocable share of fringe benefit costs, general administration and general expenses, operation and maintenance expenses, and depreciation. Appropriate adjustments will be made for services provided to other functions or organizations. b. In the absence of the alternatives provided for in Section A.2.d, the expenses included in this category must be allocated to the major functions of the institution under which the sponsored projects are conducted on the basis of the modified total cost of sponsored projects. c. An appropriate adjustment must be made to eliminate any duplicate charges to VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Federal awards when this category includes similar or identical activities as those included in the general administration and general expense category or other indirect (F&A) cost items, such as accounting, procurement, or personnel administration. 8. Library Expenses a. The expenses under this heading are those that have been incurred for the operation of the library, including the cost of books and library materials purchased for the library, less any items of library income that qualify as applicable credits under § 200.406 Applicable credits. The library expense category should also include the fringe benefits applicable to the salaries and wages included therein, an appropriate share of general administration and general expense, operation and maintenance expense, and depreciation. Costs incurred in the purchases of rare books (museum-type books) with no value to Federal awards should not be allocated to them. b. In the absence of the alternatives provided for in Section A.2.d, the expenses included in this category must be allocated first on the basis of primary categories of users, including students, professional employees, and other users. (1) The student category must consist of full-time equivalent students enrolled at the institution, regardless of whether they earn credits toward a degree or certificate. (2) The professional employee category must consist of all faculty members and other professional employees of the institution, on a full-time equivalent basis. This category may also include post-doctorate fellows and graduate students. (3) The other users category must consist of a reasonable factor as determined by institutional records to account for all other users of library facilities. c. Amount allocated in paragraph b of this section must be assigned further as follows: (1) The amount in the student category must be assigned to the instruction function of the institution. (2) The amount in the professional employee category must be assigned to the major functions of the institution in proportion to the salaries and wages of all faculty members and other professional employees applicable to those functions. (3) The amount in the other users category must be assigned to the other institutional activities function of the institution. 9. Student Administration and Services a. The expenses under this heading are those that have been incurred for the administration of student affairs and for services to students, including expenses of such activities as deans of students, admissions, registrar, counseling and placement services, student advisers, student health and infirmary services, catalogs, and commencements and convocations. The salaries of members of the academic staff whose responsibilities to the institution require administrative work that benefits sponsored projects may also be included to the extent that the portion charged to student administration is determined in accordance with Subpart E—Cost Principles of this Part. PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 78679 This expense category also includes the fringe benefit costs applicable to the salaries and wages included therein, an appropriate share of general administration and general expenses, operation and maintenance, interest expense, and depreciation. b. In the absence of the alternatives provided for in Section A.2.d, the expenses in this category must be allocated to the instruction function, and subsequently to Federal awards in that function. 10. Offset for Indirect (F&A) Expenses Otherwise Provided for by the Federal Government a. The items to be accumulated under this heading are the reimbursements and other payments from the Federal government which are made to the institution to support solely, specifically, and directly, in whole or in part, any of the administrative or service activities described in subsections 2 through 9. b. The items in this group must be treated as a credit to the affected individual indirect (F&A) cost category before that category is allocated to benefitting functions. C. Determination and Application of Indirect (F&A) Cost Rate or Rates 1. Indirect (F&A) Cost Pools a. (1) Subject to subsection b, the separate categories of indirect (F&A) costs allocated to each major function of the institution as prescribed in paragraph B of this paragraph C.1 Identification and assignment of indirect (F&A) costs, must be aggregated and treated as a common pool for that function. The amount in each pool must be divided by the distribution base described in subsection 2 to arrive at a single indirect (F&A) cost rate for each function. (2) The rate for each function is used to distribute indirect (F&A) costs to individual Federal awards of that function. Since a common pool is established for each major function of the institution, a separate indirect (F&A) cost rate would be established for each of the major functions described in Section A.1 under which Federal awards are carried out. (3) Each institution’s indirect (F&A) cost rate process must be appropriately designed to ensure that Federal sponsors do not in any way subsidize the indirect (F&A) costs of other sponsors, specifically activities sponsored by industry and foreign governments. Accordingly, each allocation method used to identify and allocate the indirect (F&A) cost pools, as described in Sections A.2, Criteria for distribution, and B.2 through B.9, must contain the full amount of the institution’s modified total costs or other appropriate units of measurement used to make the computations. In addition, the final rate distribution base (as defined in subsection 2) for each major function (organized research, instruction, etc., as described in Section A.1, Major functions of an institution) must contain all the programs or activities which utilize the indirect (F&A) costs allocated to that major function. At the time an indirect (F&A) cost proposal is submitted to a cognizant agency for indirect costs, each institution must describe the process it uses E:\FR\FM\26DER3.SGM 26DER3 78680 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations to ensure that Federal funds are not used to subsidize industry and foreign government funded programs. b. In some instances a single rate basis for use across the board on all work within a major function at an institution may not be appropriate. A single rate for research, for example, might not take into account those different environmental factors and other conditions which may affect substantially the indirect (F&A) costs applicable to a particular segment of research at the institution. A particular segment of research may be that performed under a single sponsored agreement or it may consist of research under a group of Federal awards performed in a common environment. The environmental factors are not limited to the physical location of the work. Other important factors are the level of the administrative support required, the nature of the facilities or other resources employed, the scientific disciplines or technical skills involved, the organizational arrangements used, or any combination thereof. If a particular segment of a sponsored agreement is performed within an environment which appears to generate a significantly different level of indirect (F&A) costs, provisions should be made for a separate indirect (F&A) cost pool applicable to such work. The separate indirect (F&A) cost pool should be developed during the regular course of the rate determination process and the separate indirect (F&A) cost rate resulting therefrom should be utilized; provided it is determined that (1) such indirect (F&A) cost rate differs significantly from that which would have been obtained under subsection a, and (2) the volume of work to which such rate would apply is material in relation to other Federal awards at the institution. tkelley on DSK3SPTVN1PROD with RULES3 2. The Distribution Basis Indirect (F&A) costs must be distributed to applicable Federal awards and other benefitting activities within each major function (see section A.1, Major functions of an institution) on the basis of modified total direct costs (MTDC), consisting of all salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of each subaward (regardless of the period covered by the subaward). MTDC is defined in § 200.68 Modified Total Direct Cost (MTDC). For this purpose, an indirect (F&A) cost rate should be determined for each of the separate indirect (F&A) cost pools developed pursuant to subsection 1. The rate in each case should be stated as the percentage which the amount of the particular indirect (F&A) cost pool is of the modified total direct costs identified with such pool. 3. Negotiated Lump Sum for Indirect (F&A) Costs A negotiated fixed amount in lieu of indirect (F&A) costs may be appropriate for self-contained, off-campus, or primarily subcontracted activities where the benefits derived from an institution’s indirect (F&A) services cannot be readily determined. Such negotiated indirect (F&A) costs will be treated as an offset before allocation to instruction, organized research, other VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 sponsored activities, and other institutional activities. The base on which such remaining expenses are allocated should be appropriately adjusted. 4. Predetermined Rates for Indirect (F&A) Costs Public Law 87–638 (76 Stat. 437) as amended (41 U.S.C. 4708) authorizes the use of predetermined rates in determining the ‘‘indirect costs’’ (indirect (F&A) costs) applicable under research agreements with educational institutions. The stated objectives of the law are to simplify the administration of cost-type research and development contracts (including grants) with educational institutions, to facilitate the preparation of their budgets, and to permit more expeditious closeout of such contracts when the work is completed. In view of the potential advantages offered by this procedure, negotiation of predetermined rates for indirect (F&A) costs for a period of two to four years should be the norm in those situations where the cost experience and other pertinent facts available are deemed sufficient to enable the parties involved to reach an informed judgment as to the probable level of indirect (F&A) costs during the ensuing accounting periods. 5. Negotiated Fixed Rates and Carry-Forward Provisions When a fixed rate is negotiated in advance for a fiscal year (or other time period), the over- or under-recovery for that year may be included as an adjustment to the indirect (F&A) cost for the next rate negotiation. When the rate is negotiated before the carryforward adjustment is determined, the carryforward amount may be applied to the next subsequent rate negotiation. When such adjustments are to be made, each fixed rate negotiated in advance for a given period will be computed by applying the expected indirect (F&A) costs allocable to Federal awards for the forecast period plus or minus the carry-forward adjustment (over- or underrecovery) from the prior period, to the forecast distribution base. Unrecovered amounts under lump-sum agreements or cost-sharing provisions of prior years must not be carried forward for consideration in the new rate negotiation. There must, however, be an advance understanding in each case between the institution and the cognizant agency for indirect costs as to whether these differences will be considered in the rate negotiation rather than making the determination after the differences are known. Further, institutions electing to use this carry-forward provision may not subsequently change without prior approval of the cognizant agency for indirect costs. In the event that an institution returns to a postdetermined rate, any over- or under-recovery during the period in which negotiated fixed rates and carry-forward provisions were followed will be included in the subsequent post-determined rates. Where multiple rates are used, the same procedure will be applicable for determining each rate. 6. Provisional and Final Rates for Indirect (F&A) Costs Where the cognizant agency for indirect costs determines that cost experience and PO 00000 Frm 00092 Fmt 4701 Sfmt 4700 other pertinent facts do not justify the use of predetermined rates, or a fixed rate with a carry-forward, or if the parties cannot agree on an equitable rate, a provisional rate must be established. To prevent substantial overpayment or underpayment, the provisional rate may be adjusted by the cognizant agency for indirect costs during the institution’s fiscal year. Predetermined or fixed rates may replace provisional rates at any time prior to the close of the institution’s fiscal year. If a provisional rate is not replaced by a predetermined or fixed rate prior to the end of the institution’s fiscal year, a final rate will be established and upward or downward adjustments will be made based on the actual allowable costs incurred for the period involved. 7. Fixed Rates for the Life of the Sponsored Agreement Federal agencies must use the negotiated rates except as provided in paragraph (e) of § 200.414 Indirect (F&A) costs, must paragraph (b)(1) for indirect (F&A) costs in effect at the time of the initial award throughout the life of the Federal award. Award levels for Federal awards may not be adjusted in future years as a result of changes in negotiated rates. ‘‘Negotiated rates’’ per the rate agreement include final, fixed, and predetermined rates and exclude provisional rates. ‘‘Life’’ for the purpose of this subsection means each competitive segment of a project. A competitive segment is a period of years approved by the Federal awarding agency at the time of the Federal award. If negotiated rate agreements do not extend through the life of the Federal award at the time of the initial award, then the negotiated rate for the last year of the Federal award must be extended through the end of the life of the Federal award. b. Except as provided in § 200.414 Indirect (F&A) costs, when an educational institution does not have a negotiated rate with the Federal government at the time of an award (because the educational institution is a new recipient or the parties cannot reach agreement on a rate), the provisional rate used at the time of the award must be adjusted once a rate is negotiated and approved by the cognizant agency for indirect costs. 8. Limitation on Reimbursement of Administrative Costs a. Notwithstanding the provisions of subsection C.1.a, the administrative costs charged to Federal awards awarded or amended (including continuation and renewal awards) with effective dates beginning on or after the start of the institution’s first fiscal year which begins on or after October 1, 1991, must be limited to 26% of modified total direct costs (as defined in subsection 2) for the total of General Administration and General Expenses, Departmental Administration, Sponsored Projects Administration, and Student Administration and Services (including their allocable share of depreciation, interest costs, operation and maintenance expenses, and fringe benefits costs, as provided by Section B, Identification and assignment of indirect (F&A) costs, and all other types of E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations expenditures not listed specifically under one of the subcategories of facilities in Section B. b. Institutions should not change their accounting or cost allocation methods if the effect is to change the charging of a particular type of cost from F&A to direct, or to reclassify costs, or increase allocations from the administrative pools identified in paragraph B.1 of this Appendix to the other F&A cost pools or fringe benefits. Cognizant agencies for indirect cost are authorized to allow changes where an institution’s charging practices are at variance with acceptable practices followed by a substantial majority of other institutions. tkelley on DSK3SPTVN1PROD with RULES3 9. Alternative Method for Administrative Costs a. Notwithstanding the provisions of subsection 1.a, an institution may elect to claim a fixed allowance for the ‘‘Administration’’ portion of indirect (F&A) costs. The allowance could be either 24% of modified total direct costs or a percentage equal to 95% of the most recently negotiated fixed or predetermined rate for the cost pools included under ‘‘Administration’’ as defined in Section B.1, whichever is less. Under this alternative, no cost proposal need be prepared for the ‘‘Administration’’ portion of the indirect (F&A) cost rate nor is further identification or documentation of these costs required (see subsection c). Where a negotiated indirect (F&A) cost agreement includes this alternative, an institution must make no further charges for the expenditure categories described in Section B.5, General administration and general expenses, Section B.6, Departmental administration expenses, Section B.7, Sponsored projects administration, and Section B.9, Student administration and services. b. In negotiations of rates for subsequent periods, an institution that has elected the option of subsection a may continue to exercise it at the same rate without further identification or documentation of costs. c. If an institution elects to accept a threshold rate as defined in subsection a of this section, it is not required to perform a detailed analysis of its administrative costs. However, in order to compute the facilities components of its indirect (F&A) cost rate, the institution must reconcile its indirect (F&A) cost proposal to its financial statements and make appropriate adjustments and reclassifications to identify the costs of each major function as defined in Section A.1, as well as to identify and allocate the facilities components. Administrative costs that are not identified as such by the institution’s accounting system (such as those incurred in academic departments) will be classified as instructional costs for purposes of reconciling indirect (F&A) cost proposals to financial statements and allocating facilities costs. 10. Individual Rate Components In order to provide mutually agreed-upon information for management purposes, each indirect (F&A) cost rate negotiation or determination shall include development of a rate for each indirect (F&A) cost pool as well as the overall indirect (F&A) cost rate. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 11. Negotiation and Approval of Indirect (F&A) Rate a. Cognizant agency for indirect costs is defined in Subpart A—Acronyms and Definitions. (1) Cost negotiation cognizance is assigned to the Department of Health and Human Services (HHS) or the Department of Defense’s Office of Naval Research (DOD), normally depending on which of the two agencies (HHS or DOD) provides more funds to the educational institution for the most recent three years. Information on funding must be derived from relevant data gathered by the National Science Foundation. In cases where neither HHS nor DOD provides Federal funding to an educational institution, the cognizant agency for indirect costs assignment must default to HHS. Notwithstanding the method for cognizance determination described in this section, other arrangements for cognizance of a particular educational institution may also be based in part on the types of research performed at the educational institution and must be decided based on mutual agreement between HHS and DOD. (2) After cognizance is established, it must continue for a five-year period. b. Acceptance of rates. See § 200.414 Indirect (F&A) costs. c. Correcting deficiencies. The cognizant agency for indirect costs must negotiate changes needed to correct systems deficiencies relating to accountability for Federal awards. Cognizant agencies for indirect costs must address the concerns of other affected agencies, as appropriate, and must negotiate special rates for Federal agencies that are required to limit recovery of indirect costs by statute. d. Resolving questioned costs. The cognizant agency for indirect costs must conduct any necessary negotiations with an educational institution regarding amounts questioned by audit that are due the Federal government related to costs covered by a negotiated agreement. e. Reimbursement. Reimbursement to cognizant agencies for indirect costs for work performed under this Part may be made by reimbursement billing under the Economy Act, 31 U.S.C. 1535. f. Procedure for establishing facilities and administrative rates must be established by one of the following methods: (1) Formal negotiation. The cognizant agency for indirect costs is responsible for negotiating and approving rates for an educational institution on behalf of all Federal agencies. Non-cognizant Federal agencies for indirect costs, which make Federal awards to an educational institution, must notify the cognizant agency for indirect costs of specific concerns (i.e., a need to establish special cost rates) which could affect the negotiation process. The cognizant agency for indirect costs must address the concerns of all interested agencies, as appropriate. A pre-negotiation conference may be scheduled among all interested agencies, if necessary. The cognizant agency for indirect costs must then arrange a negotiation conference with the educational institution. (2) Other than formal negotiation. The cognizant agency for indirect costs and PO 00000 Frm 00093 Fmt 4701 Sfmt 4700 78681 educational institution may reach an agreement on rates without a formal negotiation conference; for example, through correspondence or use of the simplified method described in this section D of this Appendix. g. Formalizing determinations and agreements. The cognizant agency for indirect costs must formalize all determinations or agreements reached with an educational institution and provide copies to other agencies having an interest. Determinations should include a description of any adjustments, the actual amount, both dollar and percentage adjusted, and the reason for making adjustments. h. Disputes and disagreements. Where the cognizant agency for indirect costs is unable to reach agreement with an educational institution with regard to rates or audit resolution, the appeal system of the cognizant agency for indirect costs must be followed for resolution of the disagreement. 12. Standard Format for Submission For facilities and administrative (indirect (F&A)) rate proposals, educational institutions must use the standard format, shown in section E of this appendix, to submit their indirect (F&A) rate proposal to the cognizant agency for indirect costs. The cognizant agency for indirect costs may, on an institution-by-institution basis, grant exceptions from all or portions of Part II of the standard format requirement. This requirement does not apply to educational institutions that use the simplified method for calculating indirect (F&A) rates, as described in Section D of this Appendix. In order to provide mutually agreed upon information for management purposes, each F&A cost rate negotiation or determination must include development of a rate for each F&A cost pool as well as the overall F&A rate. D. Simplified Method for Small Institutions 1. General a. Where the total direct cost of work covered by this Part at an institution does not exceed $10 million in a fiscal year, the simplified procedure described in subsections 2 or 3 may be used in determining allowable indirect (F&A) costs. Under this simplified procedure, the institution’s most recent annual financial report and immediately available supporting information must be utilized as a basis for determining the indirect (F&A) cost rate applicable to all Federal awards. The institution may use either the salaries and wages (see subsection 2) or modified total direct costs (see subsection 3) as the distribution basis. b. The simplified procedure should not be used where it produces results which appear inequitable to the Federal government or the institution. In any such case, indirect (F&A) costs should be determined through use of the regular procedure. 2. Simplified Procedure—Salaries and Wages Base a. Establish the total amount of salaries and wages paid to all employees of the institution. b. Establish an indirect (F&A) cost pool consisting of the expenditures (exclusive of E:\FR\FM\26DER3.SGM 26DER3 78682 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 capital items and other costs specifically identified as unallowable) which customarily are classified under the following titles or their equivalents: (1) General administration and general expenses (exclusive of costs of student administration and services, student activities, student aid, and scholarships). (2) Operation and maintenance of physical plant and depreciation (after appropriate adjustment for costs applicable to other institutional activities). (3) Library. (4) Department administration expenses, which will be computed as 20 percent of the salaries and expenses of deans and heads of departments. In those cases where expenditures classified under subsection (1) have previously been allocated to other institutional activities, they may be included in the indirect (F&A) cost pool. The total amount of salaries and wages included in the indirect (F&A) cost pool must be separately identified. c. Establish a salary and wage distribution base, determined by deducting from the total of salaries and wages as established in subsection a from the amount of salaries and wages included under subsection b. d. Establish the indirect (F&A) cost rate, determined by dividing the amount in the indirect (F&A) cost pool, subsection b, by the amount of the distribution base, subsection c. e. Apply the indirect (F&A) cost rate to direct salaries and wages for individual agreements to determine the amount of indirect (F&A) costs allocable to such agreements. indirect (F&A) cost pool, subsection b, by the amount of the distribution base, subsection c. e. Apply the indirect (F&A) cost rate to the modified total direct costs for individual agreements to determine the amount of indirect (F&A) costs allocable to such agreements. 3. Simplified Procedure—Modified Total Direct Cost Base a. Establish the total costs incurred by the institution for the base period. b. Establish an indirect (F&A) cost pool consisting of the expenditures (exclusive of capital items and other costs specifically identified as unallowable) which customarily are classified under the following titles or their equivalents: (1) General administration and general expenses (exclusive of costs of student administration and services, student activities, student aid, and scholarships). (2) Operation and maintenance of physical plant and depreciation (after appropriate adjustment for costs applicable to other institutional activities). (3) Library. (4) Department administration expenses, which will be computed as 20 percent of the salaries and expenses of deans and heads of departments. In those cases where expenditures classified under subsection (1) have previously been allocated to other institutional activities, they may be included in the indirect (F&A) cost pool. The modified total direct costs amount included in the indirect (F&A) cost pool must be separately identified. c. Establish a modified total direct cost distribution base, as defined in Section C.2, The distribution basis, that consists of all institution’s direct functions. d. Establish the indirect (F&A) cost rate, determined by dividing the amount in the 2. Certification of Indirect (F&A) Costs a. Policy. Cognizant agencies must not accept a proposed indirect cost rate must unless such costs have been certified by the educational institution using the Certificate of indirect (F&A) Costs set forth in subsection F.2.c b. The certificate must be signed on behalf of the institution by the chief financial officer or an individual designated by an individual at a level no lower than vice president or chief financial officer. (1) No indirect (F&A) cost rate must be binding upon the Federal government if the most recent required proposal from the institution has not been certified. Where it is necessary to establish indirect (F&A) cost rates, and the institution has not submitted a certified proposal for establishing such rates in accordance with the requirements of this section, the Federal government must unilaterally establish such rates. Such rates may be based upon audited historical data or such other data that have been furnished to the cognizant agency for indirect costs and for which it can be demonstrated that all unallowable costs have been excluded. When indirect (F&A) cost rates are unilaterally established by the Federal government because of failure of the institution to submit a certified proposal for establishing such rates in accordance with this section, the rates established will be set at a level low enough to ensure that potentially unallowable costs will not be reimbursed. c. Certificate. The certificate required by this section must be in the following form: VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 E. Documentation Requirements The standard format for documentation requirements for indirect (indirect (F&A)) rate proposals for claiming costs under the regular method is available on the OMB Web site here: http://www.whitehouse.gov/omb/ grants_forms. F. Certification 1. Certification of Charges To assure that expenditures for Federal awards are proper and in accordance with the agreement documents and approved project budgets, the annual and/or final fiscal reports or vouchers requesting payment under the agreements will include a certification, signed by an authorized official of the university, which reads ‘‘By signing this report, I certify to the best of my knowledge and belief that the report is true, complete, and accurate, and the expenditures, disbursements and cash receipts are for the purposes and intent set forth in the award documents. I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil or administrative penalties for fraud, false statements, false claims or otherwise. (U.S. Code, Title 18, Section 1001 and Title 31, Sections 3729–3733 and 3801–3812)’’. PO 00000 Frm 00094 Fmt 4701 Sfmt 4700 Certificate of Indirect (F&A) Costs This is to certify that to the best of my knowledge and belief: (1) I have reviewed the indirect (F&A) cost proposal submitted herewith; (2) All costs included in this proposal [identify date] to establish billing or final indirect (F&A) costs rate for [identify period covered by rate] are allowable in accordance with the requirements of the Federal agreement(s) to which they apply and with the cost principles applicable to those agreements. (3) This proposal does not include any costs which are unallowable under applicable cost principles such as (without limitation): public relations costs, contributions and donations, entertainment costs, fines and penalties, lobbying costs, and defense of fraud proceedings; and (4) All costs included in this proposal are properly allocable to Federal agreements on the basis of a beneficial or causal relationship between the expenses incurred and the agreements to which they are allocated in accordance with applicable requirements. I declare that the foregoing is true and correct. Institution of Higher Education: Signature: llllllllllllllll Name of Official: llllllllllll Title: llllllllllllllllll Date of Execution: llllllllllll Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations A. General 1. Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective. Direct cost of minor amounts may be treated as indirect costs under the conditions described in § 200.413 Direct costs paragraph (d) of this Part. After direct costs have been determined and assigned directly to awards or other work as appropriate, indirect costs are those remaining to be allocated to benefitting cost objectives. A cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost. ‘‘Major nonprofit organizations’’ are defined in § 200.414 Indirect (F&A) costs. See indirect cost rate reporting requirements in sections B.2.e and B.3.g of this Appendix. B. Allocation of Indirect Costs and Determination of Indirect Cost Rates 1. General a. If a nonprofit organization has only one major function, or where all its major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs and the computation of an indirect cost rate may be accomplished through simplified allocation procedures, as described in section B.2 of this Appendix. b. If an organization has several major functions which benefit from its indirect E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 costs in varying degrees, allocation of indirect costs may require the accumulation of such costs into separate cost groupings which then are allocated individually to benefitting functions by means of a base which best measures the relative degree of benefit. The indirect costs allocated to each function are then distributed to individual Federal awards and other activities included in that function by means of an indirect cost rate(s). c. The determination of what constitutes an organization’s major functions will depend on its purpose in being; the types of services it renders to the public, its clients, and its members; and the amount of effort it devotes to such activities as fundraising, public information and membership activities. d. Specific methods for allocating indirect costs and computing indirect cost rates along with the conditions under which each method should be used are described in section B.2 through B.5 of this Appendix. e. The base period for the allocation of indirect costs is the period in which such costs are incurred and accumulated for allocation to work performed in that period. The base period normally should coincide with the organization’s fiscal year but, in any event, must be so selected as to avoid inequities in the allocation of the costs. 2. Simplified Allocation Method a. Where an organization’s major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (i) separating the organization’s total costs for the base period as either direct or indirect, and (ii) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual Federal awards. The rate should be expressed as the percentage which the total amount of allowable indirect costs bears to the base selected. This method should also be used where an organization has only one major function encompassing a number of individual projects or activities, and may be used where the level of Federal awards to an organization is relatively small. b. Both the direct costs and the indirect costs must exclude capital expenditures and unallowable costs. However, unallowable costs which represent activities must be included in the direct costs under the conditions described in § 200.413 Direct costs, paragraph (e) of this Part. c. The distribution base may be total direct costs (excluding capital expenditures and other distorting items, such contracts or subawards for $25,000 or more), direct salaries and wages, or other base which results in an equitable distribution. The distribution base must exclude participant support costs as defined in § 200.75 Participant support costs. d. Except where a special rate(s) is required in accordance with section B.5 of this Appendix, the indirect cost rate developed under the above principles is applicable to all Federal awards of the organization. If a special rate(s) is required, appropriate VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 modifications must be made in order to develop the special rate(s). e. For an organization that receives more than $10 million in Federal funding of direct costs in a fiscal year, a breakout of the indirect cost component into two broad categories, Facilities and Administration as defined in section A.3 of this Appendix, is required. The rate in each case must be stated as the percentage which the amount of the particular indirect cost category (i.e., Facilities or Administration) is of the distribution base identified with that category. 3. Multiple Allocation Base Method a. General. Where an organization’s indirect costs benefit its major functions in varying degrees, indirect costs must be accumulated into separate cost groupings, as described in subparagraph b. Each grouping must then be allocated individually to benefitting functions by means of a base which best measures the relative benefits. The default allocation bases by cost pool are described in section B.3.c of this Appendix. b. Identification of indirect costs. Cost groupings must be established so as to permit the allocation of each grouping on the basis of benefits provided to the major functions. Each grouping must constitute a pool of expenses that are of like character in terms of functions they benefit and in terms of the allocation base which best measures the relative benefits provided to each function. The groupings are classified within the two broad categories: ‘‘Facilities’’ and ‘‘Administration,’’ as described in section A.3 of this Appendix. The indirect cost pools are defined as follows: (1) Depreciation. The expenses under this heading are the portion of the costs of the organization’s buildings, capital improvements to land and buildings, and equipment which are computed in accordance with § 200.436 Depreciation. (2) Interest. Interest on debt associated with certain buildings, equipment and capital improvements are computed in accordance with § 200.449 Interest. (3) Operation and maintenance expenses. The expenses under this heading are those that have been incurred for the administration, operation, maintenance, preservation, and protection of the organization’s physical plant. They include expenses normally incurred for such items as: janitorial and utility services; repairs and ordinary or normal alterations of buildings, furniture and equipment; care of grounds; maintenance and operation of buildings and other plant facilities; security; earthquake and disaster preparedness; environmental safety; hazardous waste disposal; property, liability and other insurance relating to property; space and capital leasing; facility planning and management; and central receiving. The operation and maintenance expenses category must also include its allocable share of fringe benefit costs, depreciation, and interest costs. (4) General administration and general expenses. The expenses under this heading are those that have been incurred for the overall general executive and administrative offices of the organization and other expenses PO 00000 Frm 00095 Fmt 4701 Sfmt 4700 78683 of a general nature which do not relate solely to any major function of the organization. This category must also include its allocable share of fringe benefit costs, operation and maintenance expense, depreciation, and interest costs. Examples of this category include central offices, such as the director’s office, the office of finance, business services, budget and planning, personnel, safety and risk management, general counsel, management information systems, and library costs. In developing this cost pool, special care should be exercised to ensure that costs incurred for the same purpose in like circumstances are treated consistently as either direct or indirect costs. For example, salaries of technical staff, project supplies, project publication, telephone toll charges, computer costs, travel costs, and specialized services costs must be treated as direct costs wherever identifiable to a particular program. The salaries and wages of administrative and pooled clerical staff should normally be treated as indirect costs. Direct charging of these costs may be appropriate where a major project or activity explicitly requires and budgets for administrative or clerical services and other individuals involved can be identified with the program or activity. Items such as office supplies, postage, local telephone costs, periodicals and memberships should normally be treated as indirect costs. c. Allocation bases. Actual conditions must be taken into account in selecting the base to be used in allocating the expenses in each grouping to benefitting functions. The essential consideration in selecting a method or a base is that it is the one best suited for assigning the pool of costs to cost objectives in accordance with benefits derived; a traceable cause and effect relationship; or logic and reason, where neither the cause nor the effect of the relationship is determinable. When an allocation can be made by assignment of a cost grouping directly to the function benefitted, the allocation must be made in that manner. When the expenses in a cost grouping are more general in nature, the allocation must be made through the use of a selected base which produces results that are equitable to both the Federal government and the organization. The distribution must be made in accordance with the bases described herein unless it can be demonstrated that the use of a different base would result in a more equitable allocation of the costs, or that a more readily available base would not increase the costs charged to Federal awards. The results of special cost studies (such as an engineering utility study) must not be used to determine and allocate the indirect costs to Federal awards. (1) Depreciation. Depreciation expenses must be allocated in the following manner: (a) Depreciation on buildings used exclusively in the conduct of a single function, and on capital improvements and equipment used in such buildings, must be assigned to that function. (b) Depreciation on buildings used for more than one function, and on capital improvements and equipment used in such buildings, must be allocated to the individual functions performed in each building on the E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 78684 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations basis of usable square feet of space, excluding common areas, such as hallways, stairwells, and restrooms. (c) Depreciation on buildings, capital improvements and equipment related space (e.g., individual rooms, and laboratories) used jointly by more than one function (as determined by the users of the space) must be treated as follows. The cost of each jointly used unit of space must be allocated to the benefitting functions on the basis of: (i) the employees and other users on a fulltime equivalent (FTE) basis or salaries and wages of those individual functions benefitting from the use of that space; or (ii) organization-wide employee FTEs or salaries and wages applicable to the benefitting functions of the organization. (d) Depreciation on certain capital improvements to land, such as paved parking areas, fences, sidewalks, and the like, not included in the cost of buildings, must be allocated to user categories on a FTE basis and distributed to major functions in proportion to the salaries and wages of all employees applicable to the functions. (2) Interest. Interest costs must be allocated in the same manner as the depreciation on the buildings, equipment and capital equipment to which the interest relates. (3) Operation and maintenance expenses. Operation and maintenance expenses must be allocated in the same manner as the depreciation. (4) General administration and general expenses. General administration and general expenses must be allocated to benefitting functions based on modified total costs (MTC). The MTC is the modified total direct costs (MTDC), as described in Subpart A— Acronyms and Definitions of Part 200, plus the allocated indirect cost proportion. The expenses included in this category could be grouped first according to major functions of the organization to which they render services or provide benefits. The aggregate expenses of each group must then be allocated to benefitting functions based on MTC. d. Order of distribution. (1) Indirect cost categories consisting of depreciation, interest, operation and maintenance, and general administration and general expenses must be allocated in that order to the remaining indirect cost categories as well as to the major functions of the organization. Other cost categories should be allocated in the order determined to be most appropriate by the organization. This order of allocation does not apply if cross allocation of costs is made as provided in section B.3.d.2 of this Appendix. (2) Normally, an indirect cost category will be considered closed once it has been allocated to other cost objectives, and costs must not be subsequently allocated to it. However, a cross allocation of costs between two or more indirect costs categories could be used if such allocation will result in a more equitable allocation of costs. If a cross allocation is used, an appropriate modification to the composition of the indirect cost categories is required. e. Application of indirect cost rate or rates. Except where a special indirect cost rate(s) is required in accordance with section B.5 of VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 this Appendix, the separate groupings of indirect costs allocated to each major function must be aggregated and treated as a common pool for that function. The costs in the common pool must then be distributed to individual Federal awards included in that function by use of a single indirect cost rate. f. Distribution basis. Indirect costs must be distributed to applicable Federal awards and other benefitting activities within each major function on the basis of MTDC (see definition in § 200.68 Modified Total Direct Cost (MTDC) of Part 200. g. Individual Rate Components. An indirect cost rate must be determined for each separate indirect cost pool developed. The rate in each case must be stated as the percentage which the amount of the particular indirect cost pool is of the distribution base identified with that pool. Each indirect cost rate negotiation or determination agreement must include development of the rate for each indirect cost pool as well as the overall indirect cost rate. The indirect cost pools must be classified within two broad categories: ‘‘Facilities’’ and ‘‘Administration,’’ as described in section A.3 of this Appendix. 4. Direct Allocation Method a. Some nonprofit organizations treat all costs as direct costs except general administration and general expenses. These organizations generally separate their costs into three basic categories: (i) General administration and general expenses, (ii) fundraising, and (iii) other direct functions (including projects performed under Federal awards). Joint costs, such as depreciation, rental costs, operation and maintenance of facilities, telephone expenses, and the like are prorated individually as direct costs to each category and to each Federal award or other activity using a base most appropriate to the particular cost being prorated. b. This method is acceptable, provided each joint cost is prorated using a base which accurately measures the benefits provided to each Federal award or other activity. The bases must be established in accordance with reasonable criteria, and be supported by current data. This method is compatible with the Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations issued jointly by the National Health Council, Inc., the National Assembly of Voluntary Health and Social Welfare Organizations, and the United Way of America. c. Under this method, indirect costs consist exclusively of general administration and general expenses. In all other respects, the organization’s indirect cost rates must be computed in the same manner as that described in section B.2 Simplified allocation method of this Appendix. 5. Special Indirect Cost Rates In some instances, a single indirect cost rate for all activities of an organization or for each major function of the organization may not be appropriate, since it would not take into account those different factors which may substantially affect the indirect costs applicable to a particular segment of work. For this purpose, a particular segment of PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 work may be that performed under a single Federal award or it may consist of work under a group of Federal awards performed in a common environment. These factors may include the physical location of the work, the level of administrative support required, the nature of the facilities or other resources employed, the scientific disciplines or technical skills involved, the organizational arrangements used, or any combination thereof. When a particular segment of work is performed in an environment which appears to generate a significantly different level of indirect costs, provisions should be made for a separate indirect cost pool applicable to such work. The separate indirect cost pool should be developed during the course of the regular allocation process, and the separate indirect cost rate resulting therefrom should be used, provided it is determined that (i) the rate differs significantly from that which would have been obtained under sections B.2, B.3, and B.4 of this Appendix, and (ii) the volume of work to which the rate would apply is material. C. Negotiation and Approval of Indirect Cost Rates 1. Definitions As used in this section, the following terms have the meanings set forth in this section: a. Cognizant agency for indirect costs means the Federal agency responsible for negotiating and approving indirect cost rates for a nonprofit organization on behalf of all Federal agencies. b. Predetermined rate means an indirect cost rate, applicable to a specified current or future period, usually the organization’s fiscal year. The rate is based on an estimate of the costs to be incurred during the period. A predetermined rate is not subject to adjustment. c. Fixed rate means an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period. d. Final rate means an indirect cost rate applicable to a specified past period which is based on the actual costs of the period. A final rate is not subject to adjustment. e. Provisional rate or billing rate means a temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on Federal awards pending the establishment of a final rate for the period. f. Indirect cost proposal means the documentation prepared by an organization to substantiate its claim for the reimbursement of indirect costs. This proposal provides the basis for the review and negotiation leading to the establishment of an organization’s indirect cost rate. g. Cost objective means a function, organizational subdivision, contract, Federal award, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, projects, jobs and capitalized projects. E:\FR\FM\26DER3.SGM 26DER3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 2. Negotiation and Approval of Rates a. Unless different arrangements are agreed to by the Federal agencies concerned, the Federal agency with the largest dollar value of Federal awards with an organization will be designated as the cognizant agency for indirect costs for the negotiation and approval of the indirect cost rates and, where necessary, other rates such as fringe benefit and computer charge-out rates. Once an agency is assigned cognizance for a particular nonprofit organization, the assignment will not be changed unless there is a shift in the dollar volume of the Federal awards to the organization for at least three years. All concerned Federal agencies must be given the opportunity to participate in the negotiation process but, after a rate has been agreed upon, it will be accepted by all Federal agencies. When a Federal agency has reason to believe that special operating factors affecting its Federal awards necessitate special indirect cost rates in accordance with section B.5 of this Appendix, it will, prior to the time the rates are negotiated, notify the cognizant agency for indirect costs. (See also § 200.414 Indirect (F&A) costs of Part 200.) b. Except as otherwise provided in § 200.414 Indirect (F&A) costs paragraph (e) of this Part, a nonprofit organization which has not previously established an indirect cost rate with a Federal agency must submit its initial indirect cost proposal immediately after the organization is advised that a Federal award will be made and, in no event, later than three months after the effective date of the Federal award. c. Unless approved by the cognizant agency for indirect costs in accordance with § 200.414 Indirect (F&A) costs paragraph (f) of this Part, organizations that have previously established indirect cost rates must submit a new indirect cost proposal to the cognizant agency for indirect costs within six months after the close of each fiscal year. d. A predetermined rate may be negotiated for use on Federal awards where there is reasonable assurance, based on past experience and reliable projection of the organization’s costs, that the rate is not likely to exceed a rate based on the organization’s actual costs. e. Fixed rates may be negotiated where predetermined rates are not considered appropriate. A fixed rate, however, must not be negotiated if (i) all or a substantial portion of the organization’s Federal awards are expected to expire before the carry-forward adjustment can be made; (ii) the mix of Federal and non-Federal work at the organization is too erratic to permit an equitable carry-forward adjustment; or (iii) the organization’s operations fluctuate significantly from year to year. f. Provisional and final rates must be negotiated where neither predetermined nor fixed rates are appropriate. Predetermined or fixed rates may replace provisional rates at any time prior to the close of the organization’s fiscal year. If that event does not occur, a final rate will be established and upward or downward adjustments will be made based on the actual allowable costs incurred for the period involved. g. The results of each negotiation must be formalized in a written agreement between VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 the cognizant agency for indirect costs and the nonprofit organization. The cognizant agency for indirect costs must make available copies of the agreement to all concerned Federal agencies. h. If a dispute arises in a negotiation of an indirect cost rate between the cognizant agency for indirect costs and the nonprofit organization, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs. i. To the extent that problems are encountered among the Federal agencies in connection with the negotiation and approval process, OMB will lend assistance as required to resolve such problems in a timely manner. D. Certification of Indirect (F&A) Costs Required Certification. No proposal to establish indirect (F&A) cost rates must be acceptable unless such costs have been certified by the non-profit organization using the Certificate of Indirect (F&A) Costs set forth in section j. of this appendix. The certificate must be signed on behalf of the organization by an individual at a level no lower than vice president or chief financial officer for the organization. j. Each indirect cost rate proposal must be accompanied by a certification in the following form: Certificate of Indirect (F&A) Costs This is to certify that to the best of my knowledge and belief: (1) I have reviewed the indirect (F&A) cost proposal submitted herewith; (2) All costs included in this proposal [identify date] to establish billing or final indirect (F&A) costs rate for [identify period covered by rate] are allowable in accordance with the requirements of the Federal awards to which they apply and with Subpart E— Cost Principles of Part 200. (3) This proposal does not include any costs which are unallowable under Subpart E—Cost Principles of Part 200 such as (without limitation): public relations costs, contributions and donations, entertainment costs, fines and penalties, lobbying costs, and defense of fraud proceedings; and (4) All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the Federal awards to which they are allocated in accordance with applicable requirements. I declare that the foregoing is true and correct. Nonprofit Organization: lllllllll Signature: llllllllllllllll Name of Official: llllllllllll Title: llllllllllllllllll Date of Execution: llllllllllll Appendix V to Part 200—State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans A. General 1. Most governmental units provide certain services, such as motor pools, computer centers, purchasing, accounting, etc., to operating agencies on a centralized basis. Since federally-supported awards are performed within the individual operating PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 78685 agencies, there needs to be a process whereby these central service costs can be identified and assigned to benefitted activities on a reasonable and consistent basis. The central service cost allocation plan provides that process. All costs and other data used to distribute the costs included in the plan should be supported by formal accounting and other records that will support the propriety of the costs assigned to Federal awards. 2. Guidelines and illustrations of central service cost allocation plans are provided in a brochure published by the Department of Health and Human Services entitled ‘‘A Guide for State, Local and Indian Tribal Governments: Cost Principles and Procedures for Developing Cost Allocation Plans and Indirect Cost Rates for Agreements with the Federal Government.’’ A copy of this brochure may be obtained from the Superintendent of Documents, U.S. Government Printing Office. B. Definitions 1. Agency or operating agency means an organizational unit or sub-division within a governmental unit that is responsible for the performance or administration of Federal awards or activities of the governmental unit. 2. Allocated central services means central services that benefit operating agencies but are not billed to the agencies on a fee-forservice or similar basis. These costs are allocated to benefitted agencies on some reasonable basis. Examples of such services might include general accounting, personnel administration, purchasing, etc. 3. Billed central services means central services that are billed to benefitted agencies or programs on an individual fee-for-service or similar basis. Typical examples of billed central services include computer services, transportation services, insurance, and fringe benefits. 4. Cognizant agency for indirect costs is defined in § 200.19 Cognizant agency for indirect costs of this Part. The determination of cognizant agency for indirect costs for states and local governments is described in section F.1, Negotiation and Approval of Central Service Plans. 5. Major local government means local government that receives more than $100 million in direct Federal awards subject to this Part. C. Scope of the Central Service Cost Allocation Plans The central service cost allocation plan will include all central service costs that will be claimed (either as a billed or an allocated cost) under Federal awards and will be documented as described in section E. Costs of central services omitted from the plan will not be reimbursed. D. Submission Requirements 1. Each state will submit a plan to the Department of Health and Human Services for each year in which it claims central service costs under Federal awards. The plan should include (a) a projection of the next year’s allocated central service cost (based either on actual costs for the most recently completed year or the budget projection for the coming year), and (b) a reconciliation of E:\FR\FM\26DER3.SGM 26DER3 78686 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations actual allocated central service costs to the estimated costs used for either the most recently completed year or the year immediately preceding the most recently completed year. 2. Each major local government is also required to submit a plan to its cognizant agency for indirect costs annually. 3. All other local governments claiming central service costs must develop a plan in accordance with the requirements described in this Part and maintain the plan and related supporting documentation for audit. These local governments are not required to submit their plans for Federal approval unless they are specifically requested to do so by the cognizant agency for indirect costs. Where a local government only receives funds as a subrecipient, the pass-through entity will be responsible for monitoring the subrecipient’s plan. 4. All central service cost allocation plans will be prepared and, when required, submitted within six months prior to the beginning of each of the governmental unit’s fiscal years in which it proposes to claim central service costs. Extensions may be granted by the cognizant agency for indirect costs on a case-by-case basis. E. Documentation Requirements for Submitted Plans The documentation requirements described in this section may be modified, expanded, or reduced by the cognizant agency for indirect costs on a case-by-case basis. For example, the requirements may be reduced for those central services which have little or no impact on Federal awards. Conversely, if a review of a plan indicates that certain additional information is needed, and will likely be needed in future years, it may be routinely requested in future plan submissions. Items marked with an asterisk (*) should be submitted only once; subsequent plans should merely indicate any changes since the last plan. tkelley on DSK3SPTVN1PROD with RULES3 1. General All proposed plans must be accompanied by the following: an organization chart sufficiently detailed to show operations including the central service activities of the state/local government whether or not they are shown as benefitting from central service functions; a copy of the Comprehensive Annual Financial Report (or a copy of the Executive Budget if budgeted costs are being proposed) to support the allowable costs of each central service activity included in the plan; and, a certification (see subsection 4.) that the plan was prepared in accordance with this Part, contains only allowable costs, and was prepared in a manner that treated similar costs consistently among the various Federal awards and between Federal and non-Federal awards/activities. 2. Allocated Central Services For each allocated central service, the plan must also include the following: a brief description of the service, an identification of the unit rendering the service and the operating agencies receiving the service, the items of expense included in the cost of the service, the method used to distribute the cost of the service to benefitted agencies, and VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 a summary schedule showing the allocation of each service to the specific benefitted agencies. If any self-insurance funds or fringe benefits costs are treated as allocated (rather than billed) central services, documentation discussed in subsections 3.b. and c. must also be included. 3. Billed Services a. General. The information described in this section must be provided for all billed central services, including internal service funds, self-insurance funds, and fringe benefit funds. b. Internal service funds. (1) For each internal service fund or similar activity with an operating budget of $5 million or more, the plan must include: a brief description of each service; a balance sheet for each fund based on individual accounts contained in the governmental unit’s accounting system; a revenue/expenses statement, with revenues broken out by source, e.g., regular billings, interest earned, etc.; a listing of all non-operating transfers (as defined by Generally Accepted Accounting Principles (GAAP)) into and out of the fund; a description of the procedures (methodology) used to charge the costs of each service to users, including how billing rates are determined; a schedule of current rates; and, a schedule comparing total revenues (including imputed revenues) generated by the service to the allowable costs of the service, as determined under this Part, with an explanation of how variances will be handled. (2) Revenues must consist of all revenues generated by the service, including unbilled and uncollected revenues. If some users were not billed for the services (or were not billed at the full rate for that class of users), a schedule showing the full imputed revenues associated with these users must be provided. Expenses must be broken out by object cost categories (e.g., salaries, supplies, etc.). c. Self-insurance funds. For each selfinsurance fund, the plan must include: the fund balance sheet; a statement of revenue and expenses including a summary of billings and claims paid by agency; a listing of all non-operating transfers into and out of the fund; the type(s) of risk(s) covered by the fund (e.g., automobile liability, workers’ compensation, etc.); an explanation of how the level of fund contributions are determined, including a copy of the current actuarial report (with the actuarial assumptions used) if the contributions are determined on an actuarial basis; and, a description of the procedures used to charge or allocate fund contributions to benefitted activities. Reserve levels in excess of claims (1) submitted and adjudicated but not paid, (2) submitted but not adjudicated, and (3) incurred but not submitted must be identified and explained. d. Fringe benefits. For fringe benefit costs, the plan must include: a listing of fringe benefits provided to covered employees, and the overall annual cost of each type of benefit; current fringe benefit policies; and procedures used to charge or allocate the costs of the benefits to benefitted activities. In addition, for pension and post-retirement PO 00000 Frm 00098 Fmt 4701 Sfmt 4700 health insurance plans, the following information must be provided: the governmental unit’s funding policies, e.g., legislative bills, trust agreements, or statemandated contribution rules, if different from actuarially determined rates; the pension plan’s costs accrued for the year; the amount funded, and date(s) of funding; a copy of the current actuarial report (including the actuarial assumptions); the plan trustee’s report; and, a schedule from the activity showing the value of the interest cost associated with late funding. 4. Required Certification Each central service cost allocation plan will be accompanied by a certification in the following form: CERTIFICATE OF COST ALLOCATION PLAN This is to certify that I have reviewed the cost allocation plan submitted herewith and to the best of my knowledge and belief: (1) All costs included in this proposal [identify date] to establish cost allocations or billings for [identify period covered by plan] are allowable in accordance with the requirements of this Part and the Federal award(s) to which they apply. Unallowable costs have been adjusted for in allocating costs as indicated in the cost allocation plan. (2) All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the Federal awards to which they are allocated in accordance with applicable requirements. Further, the same costs that have been treated as indirect costs have not been claimed as direct costs. Similar types of costs have been accounted for consistently. I declare that the foregoing is true and correct. Governmental Unit: lllllllllll Signature: llllllllllllllll Name of Official: llllllllllll Title: llllllllllllllllll Date of Execution: llllllllllll F. Negotiation and Approval of Central Service Plans 1. Federal Cognizant Agency for Indirect Costs Assignments for Cost Negotiation In general, unless different arrangements are agreed to by the concerned Federal agencies, for central service cost allocation plans, the cognizant agency responsible for review and approval is the Federal agency with the largest dollar value of total Federal awards with a governmental unit. For indirect cost rates and departmental indirect cost allocation plans, the cognizant agency is the Federal agency with the largest dollar value of direct Federal awards with a governmental unit or component, as appropriate. Once designated as the cognizant agency for indirect costs, the Federal agency must remain so for a period of five years. In addition, the following Federal agencies continue to be responsible for the indicated governmental entities: Department of Health and Human Services—Public assistance and state-wide cost allocation plans for all states (including the District of Columbia and Puerto Rico), E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations state and local hospitals, libraries and health districts. Department of the Interior—Indian tribal governments, territorial governments, and state and local park and recreational districts. Department of Labor—State and local labor departments. Department of Education—School districts and state and local education agencies. Department of Agriculture—State and local agriculture departments. Department of Transportation—State and local airport and port authorities and transit districts. Department of Commerce—State and local economic development districts. Department of Housing and Urban Development—State and local housing and development districts. Environmental Protection Agency—State and local water and sewer districts. 2. Review All proposed central service cost allocation plans that are required to be submitted will be reviewed, negotiated, and approved by the cognizant agency for indirect costs on a timely basis. The cognizant agency for indirect costs will review the proposal within six months of receipt of the proposal and either negotiate/approve the proposal or advise the governmental unit of the additional documentation needed to support/ evaluate the proposed plan or the changes required to make the proposal acceptable. Once an agreement with the governmental unit has been reached, the agreement will be accepted and used by all Federal agencies, unless prohibited or limited by statute. Where a Federal awarding agency has reason to believe that special operating factors affecting its Federal awards necessitate special consideration, the funding agency will, prior to the time the plans are negotiated, notify the cognizant agency for indirect costs. tkelley on DSK3SPTVN1PROD with RULES3 3. Agreement The results of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs and the governmental unit. This agreement will be subject to re-opening if the agreement is subsequently found to violate a statute or the information upon which the plan was negotiated is later found to be materially incomplete or inaccurate. The results of the negotiation must be made available to all Federal agencies for their use. 4. Adjustments Negotiated cost allocation plans based on a proposal later found to have included costs that: (a) are unallowable (i) as specified by law or regulation, (ii) as identified in subpart F, General Provisions for selected Items of Cost of this Part, or (iii) by the terms and conditions of Federal awards, or (b) are unallowable because they are clearly not allocable to Federal awards, must be adjusted, or a refund must be made at the option of the cognizant agency for indirect costs, including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for indirect costs regulations. Adjustments or VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 cash refunds may include, at the option of the cognizant agency for indirect costs, earned or imputed interest from the date of expenditure and delinquent debt interest, if applicable, chargeable in accordance with applicable cognizant agency claims collection regulations. These adjustments or refunds are designed to correct the plans and do not constitute a reopening of the negotiation. G. Other Policies 1. Billed Central Service Activities Each billed central service activity must separately account for all revenues (including imputed revenues) generated by the service, expenses incurred to furnish the service, and profit/loss. 2. Working Capital Reserves Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 3. Carry-Forward Adjustments of Allocated Central Service Costs Allocated central service costs are usually negotiated and approved for a future fiscal year on a ‘‘fixed with carry-forward’’ basis. Under this procedure, the fixed amounts for the future year covered by agreement are not subject to adjustment for that year. However, when the actual costs of the year involved become known, the differences between the fixed amounts previously approved and the actual costs will be carried forward and used as an adjustment to the fixed amounts established for a later year. This ‘‘carryforward’’ procedure applies to all central services whose costs were fixed in the approved plan. However, a carry-forward adjustment is not permitted, for a central service activity that was not included in the approved plan, or for unallowable costs that must be reimbursed immediately. 4. Adjustments of Billed Central Services Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenue generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs. These adjustments will be made through one of the following adjustment methods: (a) a cash refund including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 78687 indirect costs regulations to the Federal Government for the Federal share of the adjustment, (b) credits to the amounts charged to the individual programs, (c) adjustments to future billing rates, or (d) adjustments to allocated central service costs. Adjustments to allocated central services will not be permitted where the total amount of the adjustment for a particular service (Federal share and non-Federal) share exceeds $500,000. Adjustment methods may include, at the option of the cognizant agency, earned or imputed interest from the date of expenditure and delinquent debt interest, if applicable, chargeable in accordance with applicable cognizant agency claims collection regulations. 5. Records Retention All central service cost allocation plans and related documentation used as a basis for claiming costs under Federal awards must be retained for audit in accordance with the records retention requirements contained in Subpart D—Post Federal Award Requirements, of Part 200. 6. Appeals If a dispute arises in the negotiation of a plan between the cognizant agency for indirect costs and the governmental unit, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs. 7. OMB Assistance To the extent that problems are encountered among the Federal agencies or governmental units in connection with the negotiation and approval process, OMB will lend assistance, as required, to resolve such problems in a timely manner. Appendix VI to Part 200—Public Assistance Cost Allocation Plans A. General Federally-financed programs administered by state public assistance agencies are funded predominately by the Department of Health and Human Services (HHS). In support of its stewardship requirements, HHS has published requirements for the development, documentation, submission, negotiation, and approval of public assistance cost allocation plans in Subpart E of 45 CFR Part 95. All administrative costs (direct and indirect) are normally charged to Federal awards by implementing the public assistance cost allocation plan. This Appendix extends these requirements to all Federal agencies whose programs are administered by a state public assistance agency. Major federally-financed programs typically administered by state public assistance agencies include: Temporary Aid to Needy Families (TANF), Medicaid, Food Stamps, Child Support Enforcement, Adoption Assistance and Foster Care, and Social Services Block Grant. B. Definitions 1. State public assistance agency means a state agency administering or supervising the administration of one or more public assistance programs operated by the state as identified in Subpart E of 45 CFR Part 95. For the purpose of this Appendix, these programs E:\FR\FM\26DER3.SGM 26DER3 78688 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations include all programs administered by the state public assistance agency. 2. State public assistance agency costs means all costs incurred by, or allocable to, the state public assistance agency, except expenditures for financial assistance, medical contractor payments, food stamps, and payments for services and goods provided directly to program recipients. C. Policy State public assistance agencies will develop, document and implement, and the Federal Government will review, negotiate, and approve, public assistance cost allocation plans in accordance with Subpart E of 45 CFR Part 95. The plan will include all programs administered by the state public assistance agency. Where a letter of approval or disapproval is transmitted to a state public assistance agency in accordance with Subpart E, the letter will apply to all Federal agencies and programs. The remaining sections of this Appendix (except for the requirement for certification) summarize the provisions of Subpart E of 45 CFR Part 95. tkelley on DSK3SPTVN1PROD with RULES3 D. Submission, Documentation, and Approval of Public Assistance Cost Allocation Plans 1. State public assistance agencies are required to promptly submit amendments to the cost allocation plan to HHS for review and approval. 2. Under the coordination process outlined in section E, Review of Implementation of Approved Plans, affected Federal agencies will review all new plans and plan amendments and provide comments, as appropriate, to HHS. The effective date of the plan or plan amendment will be the first day of the calendar quarter following the event that required the amendment, unless another date is specifically approved by HHS. HHS, as the cognizant agency for indirect costs acting on behalf of all affected Federal agencies, will, as necessary, conduct negotiations with the state public assistance agency and will inform the state agency of the action taken on the plan or plan amendment. E. Review of Implementation of Approved Plans 1. Since public assistance cost allocation plans are of a narrative nature, the review during the plan approval process consists of evaluating the appropriateness of the proposed groupings of costs (cost centers) and the related allocation bases. As such, the Federal government needs some assurance that the cost allocation plan has been implemented as approved. This is accomplished by reviews by the funding agencies, single audits, or audits conducted by the cognizant audit agency. 2. Where inappropriate charges affecting more than one funding agency are identified, the cognizant HHS cost negotiation office will be advised and will take the lead in resolving the issue(s) as provided for in Subpart E of 45 CFR Part 95. 3. If a dispute arises in the negotiation of a plan or from a disallowance involving two or more funding agencies, the dispute must be resolved in accordance with the appeals procedures set out in 45 CFR Part 16. VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 Disputes involving only one funding agency will be resolved in accordance with the Federal awarding agency’s appeal process. 4. To the extent that problems are encountered among the Federal agencies or governmental units in connection with the negotiation and approval process, the Office of Management and Budget will lend assistance, as required, to resolve such problems in a timely manner. F. Unallowable Costs Claims developed under approved cost allocation plans will be based on allowable costs as identified in this Part. Where unallowable costs have been claimed and reimbursed, they will be refunded to the program that reimbursed the unallowable cost using one of the following methods: (a) a cash refund, (b) offset to a subsequent claim, or (c) credits to the amounts charged to individual Federal awards. Cash refunds, offsets, and credits may include at the option of the cognizant agency for indirect cost, earned or imputed interest from the date of expenditure and delinquent debt interest, if applicable, chargeable in accordance with applicable cognizant agency for indirect cost claims collection regulations. Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals A. General 1. Indirect costs are those that have been incurred for common or joint purposes. These costs benefit more than one cost objective and cannot be readily identified with a particular final cost objective without effort disproportionate to the results achieved. After direct costs have been determined and assigned directly to Federal awards and other activities as appropriate, indirect costs are those remaining to be allocated to benefitted cost objectives. A cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost. 2. Indirect costs include (a) the indirect costs originating in each department or agency of the governmental unit carrying out Federal awards and (b) the costs of central governmental services distributed through the central service cost allocation plan (as described in Appendix V to Part 200—State/ Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans) and not otherwise treated as direct costs. 3. Indirect costs are normally charged to Federal awards by the use of an indirect cost rate. A separate indirect cost rate(s) is usually necessary for each department or agency of the governmental unit claiming indirect costs under Federal awards. Guidelines and illustrations of indirect cost proposals are provided in a brochure published by the Department of Health and Human Services entitled ‘‘A Guide for States and Local Government Agencies: Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government.’’ A copy of this brochure may be obtained from PO 00000 Frm 00100 Fmt 4701 Sfmt 4700 the Superintendent of Documents, U.S. Government Printing Office. 4. Because of the diverse characteristics and accounting practices of governmental units, the types of costs which may be classified as indirect costs cannot be specified in all situations. However, typical examples of indirect costs may include certain state/local-wide central service costs, general administration of the non-Federal entity accounting and personnel services performed within the non-Federal entity, depreciation on buildings and equipment, the costs of operating and maintaining facilities. 5. This Appendix does not apply to state public assistance agencies. These agencies should refer instead to Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals. B. Definitions 1. Base means the accumulated direct costs (normally either total direct salaries and wages or total direct costs exclusive of any extraordinary or distorting expenditures) used to distribute indirect costs to individual Federal awards. The direct cost base selected should result in each Federal award bearing a fair share of the indirect costs in reasonable relation to the benefits received from the costs. 2. Base period for the allocation of indirect costs is the period in which such costs are incurred and accumulated for allocation to activities performed in that period. The base period normally should coincide with the governmental unit’s fiscal year, but in any event, must be so selected as to avoid inequities in the allocation of costs. 3. Cognizant agency for indirect costs means the Federal agency responsible for reviewing and approving the governmental unit’s indirect cost rate(s) on the behalf of the Federal government. The cognizant agency for indirect costs assignment is described in Appendix VI, section F, Negotiation and Approval of Central Service Plans. 4. Final rate means an indirect cost rate applicable to a specified past period which is based on the actual allowable costs of the period. A final audited rate is not subject to adjustment. 5. Fixed rate means an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual, allowable costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period. 6. Indirect cost pool is the accumulated costs that jointly benefit two or more programs or other cost objectives. 7. Indirect cost rate is a device for determining in a reasonable manner the proportion of indirect costs each program should bear. It is the ratio (expressed as a percentage) of the indirect costs to a direct cost base. 8. Indirect cost rate proposal means the documentation prepared by a governmental unit or subdivision thereof to substantiate its request for the establishment of an indirect cost rate. 9. Predetermined rate means an indirect cost rate, applicable to a specified current or E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations future period, usually the governmental unit’s fiscal year. This rate is based on an estimate of the costs to be incurred during the period. Except under very unusual circumstances, a predetermined rate is not subject to adjustment. (Because of legal constraints, predetermined rates are not permitted for Federal contracts; they may, however, be used for grants or cooperative agreements.) Predetermined rates may not be used by governmental units that have not submitted and negotiated the rate with the cognizant agency for indirect costs. In view of the potential advantages offered by this procedure, negotiation of predetermined rates for indirect costs for a period of two to four years should be the norm in those situations where the cost experience and other pertinent facts available are deemed sufficient to enable the parties involved to reach an informed judgment as to the probable level of indirect costs during the ensuing accounting periods. 10. Provisional rate means a temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on Federal awards pending the establishment of a ‘‘final’’ rate for that period. C. Allocation of Indirect Costs and Determination of Indirect Cost Rates tkelley on DSK3SPTVN1PROD with RULES3 1. General a. Where a governmental unit’s department or agency has only one major function, or where all its major functions benefit from the indirect costs to approximately the same degree, the allocation of indirect costs and the computation of an indirect cost rate may be accomplished through simplified allocation procedures as described in subsection 2. b. Where a governmental unit’s department or agency has several major functions which benefit from its indirect costs in varying degrees, the allocation of indirect costs may require the accumulation of such costs into separate cost groupings which then are allocated individually to benefitted functions by means of a base which best measures the relative degree of benefit. The indirect costs allocated to each function are then distributed to individual Federal awards and other activities included in that function by means of an indirect cost rate(s). c. Specific methods for allocating indirect costs and computing indirect cost rates along with the conditions under which each method should be used are described in subsections 2, 3 and 4. 2. Simplified Method a. Where a non-Federal entity’s major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (1) classifying the nonFederal entity’s total costs for the base period as either direct or indirect, and (2) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual Federal awards. The rate should be expressed as the percentage which the total amount of VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 allowable indirect costs bears to the base selected. This method should also be used where a governmental unit’s department or agency has only one major function encompassing a number of individual projects or activities, and may be used where the level of Federal awards to that department or agency is relatively small. b. Both the direct costs and the indirect costs must exclude capital expenditures and unallowable costs. However, unallowable costs must be included in the direct costs if they represent activities to which indirect costs are properly allocable. c. The distribution base may be (1) total direct costs (excluding capital expenditures and other distorting items, such as passthrough funds, subcontracts in excess of $25,000, participant support costs, etc.), (2) direct salaries and wages, or (3) another base which results in an equitable distribution. 3. Multiple Allocation Base Method a. Where a non-Federal entity’s indirect costs benefit its major functions in varying degrees, such costs must be accumulated into separate cost groupings. Each grouping must then be allocated individually to benefitted functions by means of a base which best measures the relative benefits. b. The cost groupings should be established so as to permit the allocation of each grouping on the basis of benefits provided to the major functions. Each grouping should constitute a pool of expenses that are of like character in terms of the functions they benefit and in terms of the allocation base which best measures the relative benefits provided to each function. The number of separate groupings should be held within practical limits, taking into consideration the materiality of the amounts involved and the degree of precision needed. c. Actual conditions must be taken into account in selecting the base to be used in allocating the expenses in each grouping to benefitted functions. When an allocation can be made by assignment of a cost grouping directly to the function benefitted, the allocation must be made in that manner. When the expenses in a grouping are more general in nature, the allocation should be made through the use of a selected base which produces results that are equitable to both the Federal government and the governmental unit. In general, any cost element or related factor associated with the governmental unit’s activities is potentially adaptable for use as an allocation base provided that: (1) it can readily be expressed in terms of dollars or other quantitative measures (total direct costs, direct salaries and wages, staff hours applied, square feet used, hours of usage, number of documents processed, population served, and the like), and (2) it is common to the benefitted functions during the base period. d. Except where a special indirect cost rate(s) is required in accordance with paragraph (C)(4) of this Appendix, the separate groupings of indirect costs allocated to each major function must be aggregated and treated as a common pool for that function. The costs in the common pool must then be distributed to individual Federal awards included in that function by use of a single indirect cost rate. PO 00000 Frm 00101 Fmt 4701 Sfmt 4700 78689 e. The distribution base used in computing the indirect cost rate for each function may be (1) total direct costs (excluding capital expenditures and other distorting items such as pass-through funds, subcontracts in excess of $25,000, participant support costs, etc.), (2) direct salaries and wages, or (3) another base which results in an equitable distribution. An indirect cost rate should be developed for each separate indirect cost pool developed. The rate in each case should be stated as the percentage relationship between the particular indirect cost pool and the distribution base identified with that pool. 4. Special Indirect Cost Rates a. In some instances, a single indirect cost rate for all activities of a non-Federal entity or for each major function of the agency may not be appropriate. It may not take into account those different factors which may substantially affect the indirect costs applicable to a particular program or group of programs. The factors may include the physical location of the work, the level of administrative support required, the nature of the facilities or other resources employed, the organizational arrangements used, or any combination thereof. When a particular Federal award is carried out in an environment which appears to generate a significantly different level of indirect costs, provisions should be made for a separate indirect cost pool applicable to that Federal award. The separate indirect cost pool should be developed during the course of the regular allocation process, and the separate indirect cost rate resulting therefrom should be used, provided that: (1) The rate differs significantly from the rate which would have been developed under paragraphs (C)(2) and (C)(3) of this Appendix, and (2) the Federal award to which the rate would apply is material in amount. b. Where Federal statutes restrict the reimbursement of certain indirect costs, it may be necessary to develop a special rate for the affected Federal award. Where a ‘‘restricted rate’’ is required, the same procedure for developing a non-restricted rate will be used except for the additional step of the elimination from the indirect cost pool those costs for which the law prohibits reimbursement. D. Submission and Documentation of Proposals 1. Submission of Indirect Cost Rate Proposals a. All departments or agencies of the governmental unit desiring to claim indirect costs under Federal awards must prepare an indirect cost rate proposal and related documentation to support those costs. The proposal and related documentation must be retained for audit in accordance with the records retention requirements contained in the Common Rule. b. A governmental department or agency unit that receives more than $35 million in direct Federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs. Other governmental department or agency must develop an indirect cost proposal in accordance with the requirements of this Part and maintain the E:\FR\FM\26DER3.SGM 26DER3 78690 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 proposal and related supporting documentation for audit. These governmental departments or agencies are not required to submit their proposals unless they are specifically requested to do so by the cognizant agency for indirect costs. Where a non-Federal entity only receives funds as a subrecipient, the pass-through entity will be responsible for negotiating and/or monitoring the subrecipient’s indirect costs. c. Each Indian tribal government desiring reimbursement of indirect costs must submit its indirect cost proposal to the Department of the Interior (its cognizant agency for indirect costs). d. Indirect cost proposals must be developed (and, when required, submitted) within six months after the close of the governmental unit’s fiscal year, unless an exception is approved by the cognizant agency for indirect costs. If the proposed central service cost allocation plan for the same period has not been approved by that time, the indirect cost proposal may be prepared including an amount for central services that is based on the latest federallyapproved central service cost allocation plan. The difference between these central service amounts and the amounts ultimately approved will be compensated for by an adjustment in a subsequent period. herewith and to the best of my knowledge and belief: (1) All costs included in this proposal [identify date] to establish billing or final indirect costs rates for [identify period covered by rate] are allowable in accordance with the requirements of the Federal award(s) to which they apply and the provisions of this Part. Unallowable costs have been adjusted for in allocating costs as indicated in the indirect cost proposal (2) All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the agreements to which they are allocated in accordance with applicable requirements. Further, the same costs that have been treated as indirect costs have not been claimed as direct costs. Similar types of costs have been accounted for consistently and the Federal government will be notified of any accounting changes that would affect the predetermined rate. I declare that the foregoing is true and correct. Governmental Unit: lllllllllll Signature: llllllllllllllll Name of Official: llllllllllll Title: llllllllllllllllll Date of Execution: llllllllllll 2. Documentation of Proposals The following must be included with each indirect cost proposal: a. The rates proposed, including subsidiary work sheets and other relevant data, cross referenced and reconciled to the financial data noted in subsection b. Allocated central service costs will be supported by the summary table included in the approved central service cost allocation plan. This summary table is not required to be submitted with the indirect cost proposal if the central service cost allocation plan for the same fiscal year has been approved by the cognizant agency for indirect costs and is available to the funding agency. b. A copy of the financial data (financial statements, comprehensive annual financial report, executive budgets, accounting reports, etc.) upon which the rate is based. Adjustments resulting from the use of unaudited data will be recognized, where appropriate, by the Federal cognizant agency for indirect costs in a subsequent proposal. c. The approximate amount of direct base costs incurred under Federal awards. These costs should be broken out between salaries and wages and other direct costs. d. A chart showing the organizational structure of the agency during the period for which the proposal applies, along with a functional statement(s) noting the duties and/ or responsibilities of all units that comprise the agency. (Once this is submitted, only revisions need be submitted with subsequent proposals.) 3. Required certification. Each indirect cost rate proposal must be accompanied by a certification in the following form: CERTIFICATE OF INDIRECT COSTS This is to certify that I have reviewed the indirect cost rate proposal submitted E. Negotiation and Approval of Rates. 1. Indirect cost rates will be reviewed, negotiated, and approved by the cognizant agency on a timely basis. Once a rate has been agreed upon, it will be accepted and used by all Federal agencies unless prohibited or limited by statute. Where a Federal awarding agency has reason to believe that special operating factors affecting its Federal awards necessitate special indirect cost rates, the funding agency will, prior to the time the rates are negotiated, notify the cognizant agency for indirect costs. 2. The use of predetermined rates, if allowed, is encouraged where the cognizant agency for indirect costs has reasonable assurance based on past experience and reliable projection of the non-Federal entity’s costs, that the rate is not likely to exceed a rate based on actual costs. Long-term agreements utilizing predetermined rates extending over two or more years are encouraged, where appropriate. 3. The results of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs and the governmental unit. This agreement will be subject to re-opening if the agreement is subsequently found to violate a statute, or the information upon which the plan was negotiated is later found to be materially incomplete or inaccurate. The agreed upon rates must be made available to all Federal agencies for their use. 4. Refunds must be made if proposals are later found to have included costs that (a) are unallowable (i) as specified by law or regulation, (ii) as identified in § 200.420 Considerations for selected items of cost, of this Part, or (iii) by the terms and conditions of Federal awards, or (b) are unallowable because they are clearly not allocable to Federal awards. These adjustments or refunds will be made regardless of the type VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 PO 00000 Frm 00102 Fmt 4701 Sfmt 4700 of rate negotiated (predetermined, final, fixed, or provisional). F. Other Policies 1. Fringe Benefit Rates If overall fringe benefit rates are not approved for the governmental unit as part of the central service cost allocation plan, these rates will be reviewed, negotiated and approved for individual recipient agencies during the indirect cost negotiation process. In these cases, a proposed fringe benefit rate computation should accompany the indirect cost proposal. If fringe benefit rates are not used at the recipient agency level (i.e., the agency specifically identifies fringe benefit costs to individual employees), the governmental unit should so advise the cognizant agency for indirect costs. 2. Billed Services Provided by the Recipient Agency In some cases, governmental departments or agencies (components of the governmental unit) provide and bill for services similar to those covered by central service cost allocation plans (e.g., computer centers). Where this occurs, the governmental departments or agencies (components of the governmental unit)should be guided by the requirements in Appendix VI relating to the development of billing rates and documentation requirements, and should advise the cognizant agency for indirect costs of any billed services. Reviews of these types of services (including reviews of costing/ billing methodology, profits or losses, etc.) will be made on a case-by-case basis as warranted by the circumstances involved. 3. Indirect Cost Allocations Not Using Rates In certain situations, governmental departments or agencies (components of the governmental unit), because of the nature of their Federal awards, may be required to develop a cost allocation plan that distributes indirect (and, in some cases, direct) costs to the specific funding sources. In these cases, a narrative cost allocation methodology should be developed, documented, maintained for audit, or submitted, as appropriate, to the cognizant agency for indirect costs for review, negotiation, and approval. 4. Appeals If a dispute arises in a negotiation of an indirect cost rate (or other rate) between the cognizant agency for indirect costs and the governmental unit, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs. 5. Collection of Unallowable Costs and Erroneous Payments Costs specifically identified as unallowable and charged to Federal awards either directly or indirectly will be refunded (including interest chargeable in accordance with applicable Federal cognizant agency for indirect costs regulations). 6. OMB Assistance To the extent that problems are encountered among the Federal agencies or E:\FR\FM\26DER3.SGM 26DER3 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations governmental units in connection with the negotiation and approval process, OMB will lend assistance, as required, to resolve such problems in a timely manner. Appendix VIII to Part 200—Nonprofit Organizations Exempted From Subpart E—Cost Principles of Part 200 tkelley on DSK3SPTVN1PROD with RULES3 1. Advance Technology Institute (ATI), Charleston, South Carolina 2. Aerospace Corporation, El Segundo, California 3. American Institutes of Research (AIR), Washington, DC 4. Argonne National Laboratory, Chicago, Illinois 5. Atomic Casualty Commission, Washington, DC 6. Battelle Memorial Institute, Headquartered in Columbus, Ohio 7. Brookhaven National Laboratory, Upton, New York 8. Charles Stark Draper Laboratory, Incorporated, Cambridge, Massachusetts 9. CNA Corporation (CNAC), Alexandria, Virginia 10. Environmental Institute of Michigan, Ann Arbor, Michigan 11. Georgia Institute of Technology/Georgia Tech Applied Research Corporation/ Georgia Tech Research Institute, Atlanta, Georgia 12. Hanford Environmental Health Foundation, Richland, Washington 13. IIT Research Institute, Chicago, Illinois VerDate Mar<15>2010 18:36 Dec 24, 2013 Jkt 232001 14. Institute of Gas Technology, Chicago, Illinois 15. Institute for Defense Analysis, Alexandria, Virginia 16. LMI, McLean, Virginia 17. Mitre Corporation, Bedford, Massachusetts 18. Noblis, Inc., Falls Church, Virginia 19. National Radiological Astronomy Observatory, Green Bank, West Virginia 20. National Renewable Energy Laboratory, Golden, Colorado 21. Oak Ridge Associated Universities, Oak Ridge, Tennessee 22. Rand Corporation, Santa Monica, California 23. Research Triangle Institute, Research Triangle Park, North Carolina 24. Riverside Research Institute, New York, New York 25. South Carolina Research Authority (SCRA), Charleston, South Carolina 26. Southern Research Institute, Birmingham, Alabama 27. Southwest Research Institute, San Antonio, Texas 28. SRI International, Menlo Park, California 29. Syracuse Research Corporation, Syracuse, New York 30. Universities Research Association, Incorporated (National Acceleration Lab), Argonne, Illinois 31. Urban Institute, Washington DC 32. Non-profit insurance companies, such as Blue Cross and Blue Shield Organizations 33. Other non-profit organizations as negotiated with Federal awarding agencies PO 00000 Frm 00103 Fmt 4701 Sfmt 9990 78691 Appendix IX to Part 200—Hospital Cost Principles Based on initial feedback, OMB proposes to establish a review process to consider existing hospital cost determine how best to update and align them with this Part. Until such time as revised guidance is proposed and implemented for hospitals, the existing principles located at 45 CFR Part 74 Appendix E, entitled ‘‘Principles for Determining Cost Applicable to Research and Development Under Grants and Contracts with Hospitals,’’ remain in effect. Appendix X to Part 200—Data Collection Form (Form SF–SAC) The Data Collection Form SF–SAC is available on the FAC Web site. Appendix XI to Part 200—Compliance Supplement The compliance supplement is available on the OMB Web site: (e.g. for 2013 here http://www.whitehouse.gov/omb/circulars/) PARTS 215, 220, 225, and 230— [REMOVED] 4. Remove parts 215, 220, 225, and 230. ■ [FR Doc. 2013–30465 Filed 12–19–13; 8:45 am] BILLING CODE P E:\FR\FM\26DER3.SGM 26DER3

Agencies

[Federal Register Volume 78, Number 248 (Thursday, December 26, 2013)]
[Rules and Regulations]
[Pages 78589-78691]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30465]



[[Page 78589]]

Vol. 78

Thursday,

No. 248

December 26, 2013

Part III





Office of Management and Budget





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2 CFR Chapter I, Chapter II, Part 200, et al.





Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards; Final Rule

Federal Register / Vol. 78 , No. 248 / Thursday, December 26, 2013 / 
Rules and Regulations

[[Page 78590]]


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OFFICE OF MANAGEMENT AND BUDGET

2 CFR Chapter I, and Chapter II, Parts 200, 215, 220, 225, and 230


Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards

AGENCY: Executive Office of the President, Office of Management and 
Budget (OMB).

ACTION: Final guidance.

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SUMMARY: To deliver on the promise of a 21st-Century government that is 
more efficient, effective and transparent, the Office of Management and 
Budget (OMB) is streamlining the Federal government's guidance on 
Administrative Requirements, Cost Principles, and Audit Requirements 
for Federal awards. These modifications are a key component of a larger 
Federal effort to more effectively focus Federal resources on improving 
performance and outcomes while ensuring the financial integrity of 
taxpayer dollars in partnership with non-Federal stakeholders. This 
guidance provides a governmentwide framework for grants management 
which will be complemented by additional efforts to strengthen program 
outcomes through innovative and effective use of grant-making models, 
performance metrics, and evaluation. This reform of OMB guidance will 
reduce administrative burden for non-Federal entities receiving Federal 
awards while reducing the risk of waste, fraud and abuse.
    This final guidance supersedes and streamlines requirements from 
OMB Circulars A-21, A-87, A-110, and A-122 (which have been placed in 
OMB guidances); Circulars A-89, A-102, and A-133; and the guidance in 
Circular A-50 on Single Audit Act follow-up. Future reform efforts may 
eventually seek to incorporate the Cost Principles for Hospitals in 
Department of Health and Human Services regulations. Copies of the OMB 
Circulars that are superseded by this guidance are available on OMB's 
Web site at http://www.whitehouse.gov/omb/circulars_default/. The 
final guidance consolidates the guidance previously contained in the 
aforementioned citations into a streamlined format that aims to improve 
both the clarity and accessibility. This final guidance is located in 
Title 2 of the Code of Federal Regulations.
    This final guidance does not broaden the scope of applicability 
from existing government-wide requirements, affecting Federal awards to 
non-Federal entities including state and local governments, Indian 
tribes, institutions of higher education, and nonprofit organizations. 
Parts of it may also apply to for-profit entities in limited 
circumstances and to foreign entities as described in this guidance and 
the Federal Acquisition Regulation. This guidance does not change or 
modify any existing statute or guidance otherwise based on any existing 
statute. This guidance does not supersede any existing or future 
authority under law or by executive order or the Federal Acquisition 
Regulation.

DATES: Effective Date: This guidance is effective December 26, 2013.
    Applicability Date: This guidance is applicable for Federal 
agencies December 26, 2013 and applicable for non-Federal entities as 
described in this guidance.

FOR FURTHER INFORMATION CONTACT: OMB will host an informational webcast 
with the Council on Financial Assistance Reform and key stakeholders. 
Please visit www.cfo.gov/cofar for further information on the time and 
date of the webcast and on the Council on Financial Assistance Reform. 
For general information, please contact Victoria Collin or Gil Tran at 
the OMB Office of Federal Financial Management at (202) 395-3993.

SUPPLEMENTARY INFORMATION: 

I. Objectives and Background

A. Objectives

    The goal of this reform is to deliver on the President's directives 
to (1) streamline our guidance for Federal awards to ease 
administrative burden and (2) strengthen oversight over Federal funds 
to reduce risks of waste, fraud, and abuse. Streamlining existing OMB 
guidance will increase the efficiency and effectiveness of Federal 
awards to ensure best use of the more than $500 billion expended 
annually.
    This reform builds on two years of work by the Federal government 
and its non-Federal partners: state, and local governments, Indian 
tribes, institutions of higher education, nonprofit organizations, and 
the audit community to rethink and reform the rules that govern our 
stewardship of Federal dollars. The revised rules set standard 
requirements for financial management of Federal awards across the 
entire Federal government.
    These reforms complement targeted efforts by OMB and a number of 
Federal agencies to reform overall approaches to grant-making by 
implementing innovative, outcome-focused grant-making designs and 
processes in collaboration with their non-Federal partners, in 
accordance with OMB guidance in M-13-17 ``Next Steps in the Evidence 
and Innovation Agenda''. This new guidance plays an important role in 
fostering these and other innovative models and cost-effective 
approaches by including many provisions that strengthen requirements 
for internal controls while providing administrative flexibility for 
non-Federal entities. These provisions include mechanisms such as 
``fixed amount awards'' which rely more on performance than compliance 
requirements to ensure accountability, and allow Federal agencies some 
additional flexibility to waive some requirements (in addition to the 
longstanding option to apply to OMB to waive requirements) that impede 
their capacity to achieve better outcomes through Federal awards. This 
guidance will provide a backbone for sound financial management as 
Federal agencies and their partners continue to develop and advance 
innovative and effective practices.
    This reform of OMB guidance will improve the integrity of the 
financial management and operation of Federal programs and strengthen 
accountability for Federal dollars by improving policies that protect 
against waste, fraud, and abuse. At the same time, this reform will 
increase the impact and accessibility of programs by minimizing time 
spent complying with unnecessarily burdensome administrative 
requirements, and so re-orients recipients toward achieving program 
objectives. Through close and sustained collaboration with Federal and 
non-Federal partners, OMB has developed ideas that will ensure that 
discretionary grants and cooperative agreements are awarded based on 
merit; that management increases focus on performance outcomes; that 
rules governing the allocation of Federal funds are streamlined, and 
that the Single Audit oversight tool is better focused to reduce waste, 
fraud, and abuse.
    As set forth in Executive Order 13563 of January 18, 2011, on 
Improving Regulation and Regulatory Review (76 FR 3821; January 21, 
2011; http://www.gpo.gov/fdsys/pkg/FR-2011-01-21/pdf/2011-1385.pdf), 
each Federal agency must ``tailor its regulations to impose the least 
burden on society, consistent with regulatory objectives, taking into 
account, among other things, and to the extent practicable, the costs 
of cumulative regulations.'' To that end, it is important that Federal 
agencies identify those ``rules that may be outmoded, ineffective, 
insufficient, or excessively burdensome,'' and ``modify,

[[Page 78591]]

streamline, expand, or repeal them in accordance with what has been 
learned.'' This was reinforced in Executive Order 13579 of July 11, 
2011 on Regulation and Independent Regulatory Agencies (76 FR 41587; 
July 14, 2011; http://www.gpo.gov/fdsys/pkg/FR-2011-07-14/pdf/2011-17953.pdf).
    As in other areas involving Federal requirements, this guidance 
follows OMB's commitment to making government more accountable to the 
American people while eliminating requirements that are unnecessary and 
reforming those requirements that are overly burdensome. Eliminating 
unnecessary requirements will allow recipients of Federal awards to re-
orient efforts spent on compliance with complex requirements towards 
achievement of programmatic objectives. In order to ensure that the 
public receives the most value, it is essential that these programs 
function as effectively and efficiently as possible, and that there is 
a high level of accountability to prevent waste, fraud, and abuse.
    This reform streamlines the language from eight existing OMB 
circulars into one consolidated set of guidance in the code of Federal 
regulations. This consolidation is aimed at eliminating duplicative or 
almost duplicative language in order to clarify where policy is 
substantively different across types of entities, and where it is not. 
As a result, the guidance includes sections and parts of sections which 
are clearly delineated by the type of non-Federal entity to which they 
apply. For Federal agencies, auditors, and pass-through entities that 
engage with multiple types of non-Federal entities in the course of 
managing grants, this consolidation is intended to clarify where 
policies are uniform or differ across non-Federal entities, protecting 
variances in policy where required by the unique nature of each type of 
non-Federal entity. This clarification will make compliance less 
burdensome for recipients and reduce the number of audit findings that 
result more from unclear guidance than actual noncompliance. Section 
200.101 Applicability outlines how each subpart of the proposed 
guidance will apply across types of Federal awards. Following the 
implementation of these reforms, OMB will continue to monitor their 
effects to evaluate whether (and the extent to which) the reforms are 
achieving their desired results, and will consider making further 
modifications as appropriate.

B. The Development of the Reform

    This proposal reflects input from more than two years of work by 
the Federal and non-Federal financial assistance community led by the 
COFAR in response to the following two Presidential Directives:
    1. February 28, 2011, Presidential Memorandum on Administrative 
Flexibility, Lower Costs, and Better Results for State, Local, and 
Tribal Governments, (Daily Comp. Pres. Docs.; http://www.gpo.gov/fdsys/pkg/DCPD-201100123/pdf/DCPD-201100123.pdf). This memorandum directs OMB 
to, with input from our partners and consistent with law, reduce 
unnecessary regulatory and administrative burdens and redirect 
resources to services that are essential to achieving better outcomes 
at lower cost. Specifically, the memorandum directs OMB to ``review and 
where appropriate revise guidance concerning cost principles, burden 
minimizations, and audits for state, local, and tribal governments in 
order to eliminate, to the extent permitted by law, unnecessary, unduly 
burdensome, duplicative, or low-priority recordkeeping requirements and 
effectively tie such requirements to achievement of outcomes.''
    2. Executive Order 13520 on Reducing Improper Payments (74 FR 
62201; November 25, 2009; http://www.gpo.gov/fdsys/pkg/FR-2009-11-25/pdf/E9-28493.pdf). Equally as essential to a 21st-Century government as 
reducing burdensome requirements that promote inefficiency is 
strengthening accountability by ``intensifying efforts to eliminate 
payment error, waste, fraud, and abuse'' in Federal programs, as 
required by EO 13520. Accordingly, Federal agencies must ``more 
effectively tailor their methodologies for identifying and measuring 
improper payments to those programs, or components of programs, where 
improper payments are most likely to occur.''
    In response to the President's directives above, OMB worked with 
the Council on Financial Assistance Reform (COFAR, more information 
available at cfo.gov/COFAR) to publish the February 28, 2012 Advance 
Notice of Proposed Guidance (ANPG available at www.regulations.gov 
under docket number OMB-2012-0002) and the February 1, 2013 Notice of 
Proposed Guidance (NPG available at www.regulations.gov under docket 
number OMB-2013-0001) in the Federal Register. Through the COFAR's 
review of the comments received in response to the ANPG and the NPG, it 
has worked to formulate and further develop reform ideas to create the 
21st-Century version of financial management policy for Federal awards. 
The COFAR continues to be committed to engaging in outreach efforts 
with both Federal and non-Federal stakeholders, with respect to this 
reform and beyond.
    OMB has adopted changes from the NPG to the final guidance as 
recommended by the COFAR as described in the summary of major policy 
reforms (Part II) and the text of the final guidance (Part III). OMB 
will publish additional supporting materials on the OMB Web site at 
http://www.whitehouse.gov/omb/grants_docs.

II. Major Policy Reforms

    In the ANPG and NPG, OMB invited comments from the public on all 
issues addressed in those notices, and further invited the public to 
make additional reform suggestions. The goal of both previous notices 
was to provide the broadest possible collection of stakeholders in the 
grants community with visibility on these ideas and the opportunity to 
participate in the discussion.
    In response to each notice, OMB received more than 300 comments 
which were carefully considered in the development of this guidance. 
This section will discuss the policy reforms proposed in the NPG, the 
broad themes identified in the comments that were received across 
stakeholders, and the resulting reforms that OMB is implementing in 
this guidance. The vast majority of comments supported the idea of the 
consolidation itself and the structure of the guidance. As a result, 
this final guidance incorporates the proposed consolidation of eight 
previous sets of guidance into one. Conforming changes made throughout 
the document support streamlining and improve clarity of language; many 
of these were suggested by stakeholders during the comment period and 
have been incorporated, but are not specifically discussed in this 
preamble.
    The objective of this reform is to reduce both administrative 
burden and risk of waste, fraud and abuse.

Reducing Administrative Burden and Waste, Fraud, and Abuse:

    1. Eliminating Duplicative and Conflicting Guidance: By combining 
eight previously separate sets of OMB guidance into one, OMB has 
eliminated numerous overlapping duplicative and conflicting provisions 
of guidance that were written separately over many years. Beyond 
dealing with the administrative burden associated with understanding 
such guidance, non-Federal entities have faced risks of more 
restrictive oversight and audit findings that stem from inappropriate 
applications of the guidance caused by overlapping requirements. 
Streamlining

[[Page 78592]]

the guidance into one document improves consistency and eliminates of 
many duplicative provisions throughout. Further, as described in Sec.  
200.110 Effective Date, Federal agencies will implement this guidance 
in unison, which will provide non-Federal entities with a predictable, 
transparent, and governmentwide consistent implementation schedule. 
Finally, this completes a long-standing goal of co-locating all related 
OMB guidance into Title 2 of the Code of Federal Regulations.
    2. Focusing on Performance over Compliance for Accountability: The 
final guidance includes provisions that focus on performance over 
compliance to provide accountability for Federal funds.
     Section 200.102 Exceptions notes that on a case-by-case 
basis, in accordance with OMB guidance in M-13-17, OMB will waive 
certain compliance requirements and approve new strategies for 
innovative program designs that improve cost-effectiveness and 
encourage effective collaboration across programs to achieve outcomes. 
The models described in OMB Memorandum 13-17 include tiered evidence 
grants, Pay for Success and other pay-for-performance approaches, and 
Performance Partnerships allowing braided and blended funding. The 
goals for these models include encouraging a greater share of funding 
to support approaches with strong evidence of effectiveness and 
building more evaluation into grant-making so we keep learning more 
about what works. In addition to these specific models, M-13-17 also 
encourages Federal agencies to pursue other strategies to increase 
cost-effectiveness in high-priority programs.
     Section 200.201 Use of Grant Agreements (Including Fixed 
Amount Awards), Cooperative Agreements, And Contracts includes 
provisions for fixed amount awards that minimize compliance 
requirements in favor of requirements to meet performance milestones.
     Section 200.301 Performance Measurement provides more 
robust guidance to Federal agencies to measure performance in a way 
that will help the Federal awarding agency and other non-Federal 
entities to improve program outcomes, share lessons learned, and spread 
the adoption of promising practices. The Federal awarding agency is 
required to provide recipients with clear performance goals, 
indicators, and milestones.
     Section 200.419 Cost Accounting Standards and Disclosure 
Statement, the threshold for IHEs to comply with Cost Accounting 
Standards is raised to align with the threshold in the Federal 
Acquisition Regulations and the process for Federal agency review of 
changes in accounting practices is streamlined to reduce risk of 
noncompliance.
     Section 200.430 Compensation--Personal Services 
strengthens the requirements for non-Federal entities to maintain high 
standards for internal controls over salaries and wages while allowing 
for additional flexibility in how non-Federal entities implement 
processes to meet those standards. In addition, it provides for Federal 
agencies to approve alternative methods of accounting for salaries and 
wages based on achievement of performance outcomes, including in 
approved instances where funding from multiple programs is blended to 
more efficiently achieve a combined outcome.
    3. Encouraging Efficient Use of Information Technology and Shared 
Services: The final guidance updates provisions throughout to account 
for the efficient use of electronic information, as well as the 
acquisition and use of the information technology systems and services 
that permeate an effective and modern operating environment.
     Section 200.94 Supplies clarifies the threshold for 
defining personal property as a supply, and also that computing devices 
are subject to the less burdensome administrative requirements of 
supplies (as opposed to equipment) if the acquisition cost is less than 
the lesser of the capitalization level established by the non-Federal 
entity for financial statement purposes or $5,000.
     Section 200.303 Internal Controls requires non-Federal 
entities to take reasonable measures to safeguard protected personally 
identifiable information as well as any information that the Federal 
awarding agency or pass-through entity designates as sensitive.
     Section 200.318 General Procurement Standards paragraphs 
(d), (e), and (f) require non-Federal entity's procurement procedures 
to avoid duplicative purchases and encourage non-Federal entities to 
enter into inter-entity agreements for shared goods and services.
     In accordance with the May 2013 Executive Order on Making 
Open and Machine Readable the New Default for Government Information, 
Section 200.335 Methods for Collection, Transmission and Storage of 
Information encourages non-Federal entities to, whenever practicable, 
collect, transmit and store Federal award-related information in open 
and machine-readable formats.
     Section 200.446 Idle Facilities and Idle Capacity allows 
for the costs of idle facilities when they are necessary to meet 
fluctuations in workload, as they often are when developing shared 
service arrangements.
     Section 200.449 Interest allows non-Federal entities to be 
reimbursed for financing costs associated with patents and computer 
software capitalized in accordance with GAAP on or after January 1, 
2016.
    4. Providing For Consistent and Transparent Treatment of Costs: The 
final guidance updates policies on direct and indirect cost to reduce 
administrative burden by providing more consistent and transparent 
treatment governmentwide.
     Section 200.306 Cost Sharing Or Matching clarifies 
policies on voluntary committed cost sharing to ensure that such cost 
sharing is only solicited for research proposals when required by 
regulation and transparent in the notice of funding opportunity. It may 
never be considered during the merit review.
     Section 200.331 Requirements For Pass-Through Entities 
requires pass-through entities to provide an indirect cost rate to 
subrecipients, which may be the de minimis rate described above, 
thereby further reducing potential barriers to receiving and 
effectively implementing Federal financial assistance.
     Section 200.413 Direct Costs makes consistent the guidance 
that administrative costs may be treated as direct costs when they meet 
certain conditions to demonstrate that they are directly allocable to a 
Federal award.
     Section 200.414 Indirect (F&A) Costs includes provisions 
that:
     Provide a de minimis indirect cost rate of 10% of MTDC to 
those non-Federal entities who have never had a negotiated indirect 
cost rate, thereby eliminating a potential administrative barrier to 
receiving and effectively implementing Federal financial assistance 
(sections 200.210 Information Contained in a Federal award, 200.331 
Requirements for Pass-through entities, and 200.510 Financial 
Statements all require documentation of usage of this rate to allow for 
future evaluation of its effectiveness);
     Require Federal agencies to accept negotiated indirect 
cost rates unless an exception is required by statute or regulation, or 
approved by a Federal awarding agency head or delegate based on 
publicly documented justification;
     Allow for a one-time extension without further negotiation 
of a federally approved negotiated indirect cost rate for a period of 
up to 4 years.

[[Page 78593]]

     Section 200.433 Contingency Provisions clarifies the 
circumstances under which contingency costs may be included in Federal 
awards.
     Appendix III Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Institutions of Higher Education 
(IHEs) includes provisions that extend to all IHEs the provisions 
previously extended only to a few that allow for recovery of increased 
utility costs associated with research.
    5. Limiting Allowable Costs to Make Best Use of Federal Resources: 
The final guidance strengthens language in certain items of cost to 
appropriately limit costs under Federal awards.
     Section 200.432 Conferences clarifies allowable conference 
spending and requires conference hosts/sponsors to exercise discretion 
and judgment in ensuring that conference costs are appropriate, 
necessary and managed in a manner that minimizes costs to the Federal 
award.
     Section 200.437 Employee Health And Welfare Costs 
eliminates the existing allowance for ``morale'' cost.
     Section 200.464 Relocation Costs Of Employees limits the 
previously unlimited amount of time for which a Federal award may be 
charged for the costs of an employee's vacant home for up to six-
months.
     Section 200.469 Student Activity Costs expands to all 
entities the limitation on student activity costs that previously 
applied only to IHEs.
    6. Setting Standard Business Processes Using Data Definitions: The 
final guidance includes provisions that set the stage for Federal 
agencies to manage Federal awards via standardized business process and 
use of consistently defined data elements. This will reduce 
administrative burden on non-Federal entities that must navigate the 
processes of multiple Federal agencies as they manage information 
required to implement Federal awards.
     Subpart A--Acronyms and Definitions provides standard 
definitions of terms present not only throughout the document, but also 
throughout many approved Federal information collections used to manage 
Federal awards.
     Section 200.203 Notices Of Funding Opportunities provides 
a standard set of data elements to be provided in all Federal notices 
of funding opportunities. This will make such notices easier for non-
Federal entities to compare and understand.
     Sections 200.206 Standard Application Requirements, 
200.301 Performance Measurement, 200.327 Financial Reporting, and 
200.328 Monitoring And Reporting Program Performance all require 
Federal awarding agencies to consistently use OMB-approved standard 
information collections in their management of Federal awards.
     Section 200.210 Information Contained In A Federal Award 
provides a standard set of data elements to be provided in all Federal 
awards. As a result, non-Federal entities will receive a consistent set 
of information for each Federal award they receive, which will reduce 
the administrative burden and costs associated with managing this 
information throughout the life of the Federal award.
     Section 200.305 Payment extends to non-Federal entities 
previously covered by OMB Circular A-102 the existing flexibility in 
OMB Circular A-110 to pay interest earned on Federal funds annually to 
the Department of Health and Human Services, rather than ``promptly'' 
to each Federal awarding agency.
     Section 200.407 Prior Written Approval (Prior Approval) 
provides both Federal agencies and non-Federal entities with a one-stop 
comprehensive list of the circumstances under which non-Federal 
entities should seek prior approval from the Federal awarding agency.
    7. Encouraging Non-Federal Entities to Have Family-Friendly 
Policies: Provisions in the final guidance provide flexibilities that 
better allow non-Federal entities to have policies that allow their 
employees to balance their personal responsibilities while maintaining 
successful careers contributing to Federal awards. Specifically, these 
provisions allow for policies that ease dependent care costs when 
attending conferences- an issue that has been as one that prevents more 
women from maintaining careers in science.
     Section 200.432 Conferences provides that, for hosts of 
conferences, the costs of identifying (but not providing) locally 
available child-care resources are allowable.
     Section 200.474 Travel Costs provides that temporary 
dependent care costs that result directly from travel to conferences 
and meet specified standards are allowable.
    8. Strengthening Oversight: The final guidance strengthens 
oversight over Federal awards by requiring Federal agencies and pass-
through entities to review the risk associated with a potential 
recipient prior to making an award (including by making better use of 
available audit information where appropriate), requiring disclosures 
conflict of interest and relevant criminal violations, expressly 
prohibiting profit, requiring certifications of senior non-Federal 
entity officials, and providing Federal agencies with strong remedies 
to address non-compliance.
     Sections 200.112 Conflict of Interest and 200.113 
Mandatory Disclosures require non-Federal entities to disclose to 
Federal agencies any instances of conflict of interest or relevant 
violations of Federal criminal law.
     Sections 200.204 Federal Awarding Agency Review of Merit 
of Proposals and 200.205 Federal Awarding Agency Review of Risk Posed 
by Applicants combined with section 200.207 Specific Conditions require 
Federal awarding agencies to evaluate the merit and risks associated 
with a potential Federal award and to impose specific conditions where 
necessary to mitigate potential risks of waste, fraud, and abuse, 
before the money is spent.
     Section 200.303 Internal Controls moves guidance that 
previously was only discussed in audit requirements (which are often 
only considered after the funds have been spent) into the 
administrative requirements to encourage non-Federal entities to better 
structure their internal controls earlier in the process.
     Section 200.331 Requirements for Pass-Through Entities 
provides a similar requirement for pass-through entities to consider 
risks associated with subawards combined with flexibility to adjust 
their oversight framework based on that consideration of risk.
     Subtitle VII Remedies for Noncompliance and Subtitle VIII 
Closeout of Subpart D--Post Federal Award Requirements respectively 
provide Federal agencies with clear tools to manage non-compliance and 
efficiently closeout Federal awards.
     Section 200.400 Policy Guide expressly prohibits the non-
Federal entity from earning or keeping profit resulting from Federal 
financial assistance unless expressly authorized by the terms and 
conditions of the Federal award.
     Section 200.415 Required Certifications strengthens non-
Federal entity accountability by providing explicit and consistent 
language for required certifications that includes awareness of 
potential penalties under the False Claims Act.
    9. Targeting Audit Requirements on Risk of Waste, Fraud, and Abuse: 
The final guidance right-sizes the footprint of oversight and Single 
Audit requirements to strengthen oversight and focus audits where there 
is greatest risk of waste, fraud, and abuse of taxpayer dollars. It 
improves transparency and accountability by making single audit reports 
available to

[[Page 78594]]

the public online, and encourages Federal agencies to take a more 
cooperative approach to audit resolution in order to more conclusively 
resolve underlying weaknesses in internal controls.
     Section 200.501 Audit Requirements raises the Single Audit 
threshold from $500,000 in Federal awards per year to $750,000 in 
Federal awards per year. This reduces the audit burden for 
approximately 5,000 non-Federal entities while maintaining Single Audit 
coverage over 99% of the Federal dollars currently covered.
     Section 200.512 Report Submission requires publication of 
Single Audit Reports online with safeguards for protected personally 
identifiable information and an exception for Indian tribes in order to 
reduce the administrative burden on non-Federal entities associated 
with transmitting these reports to all interested parties.
     Section 200.513 Responsibilities requires Federal awarding 
agencies to designate a Senior Accountable Official who will be 
responsible for overseeing effective use of the Single Audit tool and 
implementing metrics to evaluate audit follow-up. This section also 
encourages Federal awarding agencies to make effective use of 
cooperative audit resolution practices in order to reduce repeated 
audit findings.
     Section 200.518 Major Program Determination focuses audits 
on the areas with internal control deficiencies that have been 
identified as material weaknesses. Future updates to the Compliance 
Supplement will reflect this focus as well.
    The specific reform ideas and the responses to public comments 
received are outlined below in three main categories:

Section A: Subparts A-E: Reforms to Administrative Requirements (the 
governmentwide Common Rule implementing Circular A-102; Circular A-110; 
and Circular A-89)
Section B: Subpart F: Reforms to Cost Principles (Circulars A-21, A-87, 
and A-122)
Section C: Subpart G: Reforms to Audit Requirements (Circulars A-133 
and A-50

    In addition, conforming changes and those for linguistic clarity 
are shown in supporting materials provided on the OMB Web site with 
this proposal (available at http://www.whitehouse.gov/omb/grants_docs#final).
Section A: Subparts A-E Reforms to Administrative Requirements (The 
Common Rule Implementing Circular A-102); Circular A-110; and Circular 
A-89
    This section discusses changes to the governmentwide common rule 
implementing Circular A-102 on Grants and Cooperative Agreements with 
State and Local Governments; Circular A-110 on Uniform Administrative 
Requirements for Grants and Other Agreements with Institutions of 
Higher Education, Hospitals and Other Non-Profit Organizations (2 CFR 
part 215); and Circular A-89 on Catalog of Federal Domestic Assistance. 
The following are major policy changes included in the final guidance.

Subpart A--Acronyms and Definitions

    Subpart A lists definitions and acronyms for key terms found 
throughout the document. Because these terms, like the rest of the 
guidance, originated in eight different sets of guidance, there are 
many conforming changes made to harmonize the definitions with the 
terms that are used throughout the guidance. Some definitions reflect 
policy decisions as follows:
200.18 Cognizant Agency for Audit and 200.73 Oversight Agency for Audit
    Commenters suggested that instead of defining the cognizant or 
oversight agency for audit as the Federal awarding agency that provides 
the most direct funding, it should be defined as the one that provides 
the most total funding. The suggestion that this would eliminate a 
potentially burdensome process of changing cognizance to allow for 
situations where a non-Federal entity receives most of its funding 
indirectly from one Federal agency, and only a small portion from 
another agency directly.
    The COFAR considered this, but noted that even where significant 
portions of Federal funds are passed-through to subrecipients, the 
Federal agency retains a direct relationship only with a direct 
recipient, and relies on the pass-through entity to oversee the 
subaward. Further, the COFAR understands these instances to be 
relatively few, and in those cases where they have preferred to have a 
cognizant or oversight relationship, they have not found the process of 
negotiating a change to be burdensome. Contrary to comments reflecting 
a belief that the current OMB policy requires any change to be made 
within 30 days, changes have always been permissible at any time with 
notification to the Federal Audit Clearinghouse within 30 days of the 
change. As such, the COFAR did not recommend a change to this 
definition.
200.23 Contractor
    Some commenters suggested that the term ``vendor'' is more 
appropriate and, in line with the Federal Acquisition Regulation, 
should be used throughout the final guidance in place of the proposed 
``contractor''. The COFAR considered this but determined that 
contractor is more accurate in the context of guidance on how to 
distinguish between a contract and a grant. The COFAR believes that 
framing the distinction this way will better encourage Federal agencies 
to appropriately apply the guidance to awards for financial assistance 
regardless of the term they currently use to describe those awards. The 
COFAR recommended continued use of the term ``contractor'' throughout. 
As used in this guidance, the term ``contractor'' includes entities 
that, in other contexts, may be referred to as ``vendors''.
200.54 Indian Tribe (or ``Federally Recognized Indian Tribe'')
    Existing guidance, including NPG, included Indian Tribes in the 
definition of a state. With the streamlined merging of the circulars 
and the inclusion of some guidance that is clearly intended only for 
either states or Indian Tribes, and in response to comments received, 
the COFAR found that this inclusion is no longer appropriate. As a 
result, the COFAR recommended that Indian Tribes, including Alaskan 
Natives, be separately defined as they are under existing statute.
200.94 Supplies
    The definition of supplies in existing guidance includes all 
tangible personal property that fall below the prescribed threshold for 
equipment. Since, as technology improves, computing devices (inclusive 
of accessories) increasingly fall below this threshold, the proposed 
guidance made explicit that when they do, they shall be treated 
consistently with all other items below this level. Many commenters 
were highly supportive of this clarification in the proposal and 
indicated that it would greatly help in minimizing administrative 
burden. Other commenters recommended that because of the high value of 
the information on computing devices and because of their 
attractiveness to potential thieves, they should be subject to the more 
prescriptive oversight requirements of equipment that falls above the 
threshold.

[[Page 78595]]

    The COFAR considered both views and determined that the sensitive 
information on computing devices could more efficiently be protected 
through guidance specifically on internal controls for sensitive 
information, rather than through prescriptive requirements for the 
devices themselves. Further, the COFAR considered that the prescriptive 
requirements that are appropriately in place for equipment over the 
threshold of $5,000 would create an administrative burden the cost of 
which would outweigh any benefits achieved by reducing the potential 
attractiveness of these devices to thieves. To guard against the costly 
burden that treating these devices as equipment would create, the COFAR 
recommended retaining the definition of supplies as proposed. To 
protect the sensitive information on these devices, the COFAR 
recommended new specific language on internal controls governing 
sensitive information (see section 200.303 Internal Controls).
200.33 Equipment
    Commenters advocated for a higher threshold for equipment than 
$5,000. Comments suggested that particularly for large state 
governments with high amounts of Federal awards, and with state 
policies of higher capitalization thresholds in place, a higher 
threshold, possibly in line with the non-Federal entity's own 
capitalization threshold, would be more appropriate. The COFAR 
considered and determined that even though entities may view higher 
thresholds as appropriate for their own purposes, maintaining the 
threshold at $5,000 is important to protect the assets purchased with 
taxpayer dollars under Federal awards. The COFAR did not recommend 
raising the threshold.
2. Subchapter B: General Provisions
200.101 Applicability
    Some commenters suggested at a minimum that this section in the 
proposal needed to be revised for clarity, and some proposed 
significant changes to applicability of the guidance beyond what had 
been proposed.
    The COFAR reviewed these and recommended changes for clarity. The 
guidance maintains existing language stating that this guidance does 
not supersede any existing or future authority under law or by 
executive order or the Federal Acquisition Regulation. In various 
sections throughout the guidance, commenters noted that it would be 
helpful to note a policy was ``except as provided in statute''. The 
COFAR recommended that this language be included once in the beginning 
as applicable throughout.
200.102 Exceptions
    Commenters suggested that this section should reflect a more active 
role for OMB as an arbiter of situations where non-Federal entities 
encounter policies that deviate from this guidance and do not appear to 
conform to the list of exceptions articulated. The COFAR considered 
this feedback, but determined that Federal agencies are responsible for 
implementing their programs under authorities provided specifically by 
statute, and are further responsible for responding to any potential 
concerns from their particular recipients. OMB, as the entity 
responsible for promulgating the governmentwide guidance, is 
responsible for ensuring that the policies best meet the desired goals 
and for providing assistance where it is needed in interpreting the 
guidance. As reflected in section 200.108 Inquiries, non-Federal 
entities should address their specific concerns to the Federal awarding 
agency, cognizant agency for indirect costs, or cognizant or oversight 
agency for audit. OMB will periodically review the guidance for 
effectiveness and will provide assistance interpreting the guidance 
upon request. In addition, new language in paragraph (d) notes that on 
a case-by-case basis, in accordance with OMB guidance in M-13-17, OMB 
will waive certain compliance requirements and approve new strategies 
for innovative program designs that improve cost-effectiveness and 
encourage effective collaboration across programs to achieve outcomes.
200.111 Effective Date
    Commenters requested that OMB and the COFAR orchestrate the 
implementation of the final guidance in a manner that results in a 
smooth transition for entities that are required to comply. The COFAR 
considered these requests as well as past implementations of OMB 
guidance and recommended that Federal agencies coordinate under OMB's 
guidance to issue regulations or OMB-reviewed guidance in unison, which 
will be effective one year from the publication of this final guidance. 
As a result, upon implementation, this guidance will be in effect for 
all Federal awards or funding increments provided after the effective 
date. Non-Federal entities wishing to implement entity-wide system 
changes to comply with the guidance after the effective date will not 
be penalized for doing so.
    The COFAR further recommended that provisions of Subpart F--Audit 
Requirements be effective for non-Federal entity fiscal years beginning 
on or after the effective date of this guidance. An auditee that 
conducts a biennial audit and has a biennial period beginning before 
the effective date of this guidance should apply the provisions of OMB 
Circular A-133. The requirements of Subpart F--Audit Requirements apply 
to any biennial periods beginning on or after the effective date of 
this guidance. Federal agencies must submit draft implementing 
regulations to OMB no later than six months from the date of 
publication of this guidance unless different provisions are required 
by statute or approved by OMB.
200.112 Conflict of Interest
    Commenters suggested that the guidance is missing a broad general 
statement requiring standards of conduct that mitigate potential 
conflicts of interest in the administration of Federal awards. The 
COFAR concurred, but noted that many Federal agencies have specific 
policies on this that are appropriately tailored to the specific nature 
of their programs. As a result, the COFAR recommended adding language 
that requires Federal agencies to have policies on conflict of interest 
in Federal awards (in case there are any that do not) and requires non-
Federal entities to disclose in writing any potential conflicts of 
interest (in accordance with applicable policies) to the Federal 
awarding agency or pass-through entity.
200.113 Mandatory Disclosures
    Commenters suggested that requirements in procurement regulations 
for non-Federal entities to disclose in writing any violations of 
Federal criminal law involving fraud, bribery, or gratuity violations 
in Title 18 of the United States Code have been effective measures to 
help prevent or prosecute instances of waste, fraud, and abuse. These 
commenters recommended that a similar provision be added to this 
guidance. The COFAR concurred with the recommendation.
    Commenters also suggested that requiring two signatures on all 
certifications would be a similarly effective measure to guard against 
waste, fraud, and abuse. The COFAR considered this, but determined that 
due to the extensive responsibility for having expert knowledge of the 
non-Federal entities' cost accounting that is required in order to make 
the certifications as they are required now, adding this requirement 
for an additional person would be a significant source of 
administrative burden. The

[[Page 78596]]

COFAR did not recommend the addition.
3. Subpart C--Pre-Award Requirements
    Content in the NPG from Subchapters previously designated as C--
Notice of Federal Awards and D--Terms and Conditions of Federal Awards 
was reorganized to provide more streamlined guidance on information 
that is required to be provided to a non-Federal entity upon receipt of 
a Federal award.
200.201 Use of Grant Agreements (Including Fixed Amount Awards), 
Cooperative Agreements, and Contracts
    In order to broaden a best practice within many Federal agencies' 
existing policy and to facilitate implementation of M-13-17, a recently 
published policy encouraging evidence-based programs, and drawing on 
existing policies and practices from several Federal agencies, new 
language has been added to the final guidance to allow for ``Fixed 
amount'' awards that rely more on performance than compliance for 
accountability. (See also Section 200.102 Exceptions and 200.430 
Compensation--Personal Services.)
200.202 Requirement To Provide Public Notice of Federal Financial 
Assistance Programs
    Comments suggested that, in order to facilitate auditor's ability 
to ensure that programs are correctly evaluated during audits, this 
section include the existing requirement for Federal agencies to 
include in the Catalog of Federal Domestic Assistance whether or not 
the particular program is subject to Single Audit Requirements in 
Subpart F. The COFAR recommended this change. The COFAR further 
recommended that due to uncertain timing regarding the integration of 
the Catalog of Federal Domestic Assistance into the System for Award 
Management, the name be left unchanged instead of changed to Catalog of 
Federal Financial Assistance as proposed.
200.203 Notices of Funding Opportunities
    As discussed in the ANPG and NPG, the bulk of this section is not a 
policy change, but rather incorporates the existing requirement for 
certain categories of information to be published in announcements of 
public funding opportunities. See OMB Memorandum M-04-01 of October 15, 
2003 (http://www.whitehouse.gov/omb/memoranda_fy04_m04-01), 
announcing the Federal Register notice that OMB published at 68 FR 
58146 (October 8, 2003).
    Commenters did note that the policy change providing a minimum 
timeframe of 30-days for applications to be available was a helpful 
idea, but that the proposed timeframe was too short to be of use. 
Federal agencies had previously indicated that the 90-day timeframe 
proposed in the ANPG was too long to be practicable given the 
constraints they often operate under.
    The COFAR considered these perspectives and recommended the final 
guidance require all funding opportunities to be available for 
application for at least 60 days, with an exception for Federal 
awarding agencies to make a determination to have a less than 60 day 
availability period but no funding opportunity should be available for 
less than 30 days. The recommended policy would assure a minimum 
timeframe that is useful to applicants, and while many Federal agencies 
would likely continue best practices of a longer application period, 
they would have the exceptions that they require under exigent 
circumstances.
200.204 Federal Awarding Agency Review of Merit of Proposals
    The proposed guidance required that unless prohibited by Federal 
statute for competitive grants and cooperative agreements, Federal 
awarding agencies must design and execute a merit review process for 
applications. This section left the design of the process to the 
Federal awarding agencies in order to leave as much flexibility as 
possible to incorporate the requirements of specific programs.
    This reform was received positively in the proposal, with the 
comment that it should be separated out from the financial risk review 
discussed in the following section. The COFAR considered the feedback 
and recommended the suggested change in organization.
200.205 Federal Awarding Agency Review of Risk Posed by Applicants
    As proposed, the guidance provides latitude for Federal awarding 
agencies to design this review as appropriate for the program. As noted 
in Section 200.101 Applicability, since nothing in this guidance can 
supersede the requirements of Federal statute, flexibilities such as 
those enshrined in the Indian Self-Determination and Education 
Assistance Act (ISDEAA) would not be contravened by this policy. 
Comments suggested that this section be structured to require a 
``framework'' for reviewing risk, rather than an award-by-award review, 
where some programs have long histories and a strong understanding of 
the risks associated with frequent applicants. Evidence from comments 
suggests that Federal agencies would likely design their risk-based 
framework to make best use as possible of existing resources such as 
Single Audit reports--which aligns with comments indicating a 
preference for use of existing resources from the non-Federal entity 
community.
    The COFAR considered the comments and recommended the suggested 
changes. In addition, the COFAR recommended that the final guidance 
clarify that, as a baseline for their review, Federal awarding agencies 
are required by 31 U.S.C. 3321 and 41 U.S.C. 2313 to review information 
available through any OMB-designated repositories of governmentwide 
eligibility qualification or financial integrity information, such as 
Federal Awardee Performance and Integrity Information System (FAPIIS), 
Dun and Bradstreet, or ``Do Not Pay'', and also to comply with 
suspension and debarment requirements at 2 CFR part 180.
200.206 Standard Application Requirements
    As proposed in the NPG, the guidance includes the requirement that 
Federal awarding agencies may only use those application information 
collections approved by OMB under the Paperwork Reduction Act of 1995 
and OMB's implementing regulation in 5 CFR part 1320. Comments were 
generally in favor of maintaining this longstanding requirement and 
strengthening enforcement. In addition, OMB and the COFAR have been 
working closely with the Government Accountability and Transparency 
Board to identify opportunities for greater standardization of 
information collections governmentwide.
    Though this is not a policy change, the COFAR endorsed it as an 
indicator of work by the COFAR and broader financial assistance 
community to further standardize governmentwide information 
collections. It is a further indicator of OMB's intent to authorize 
exceptions only on a limited basis.
200.207 Specific Conditions
    This section of the final guidance was revised in response to 
comments received to include the list of examples of specific 
conditions from existing guidance that may be applied to a Federal 
award.

[[Page 78597]]

4. Subpart D--Post-Award Requirements

Subtitle I Standards for Financial and Program Management

200.301 Performance Measurement
    In this section, commenters expressed concern about the 
longstanding requirement to relate performance to financial information 
whenever practicable. This language was not a change from existing 
policy, but in response to concerns, the COFAR recommended 
clarifications that this requirement will be met through use of 
governmentwide standard information collections, and notes that further 
requirements are as appropriate in accordance with those collections. 
This means that, for the research community where there are standard 
information collections for performance that, in accordance with the 
``where practicable'' aspect of the guidance, do not relate financial 
information to performance data, there will be no such requirement.
200.302 Financial Management
    Some commenters suggested that to strengthen financial management, 
non-Federal entities should be required to maintain separate bank 
accounts for each Federal award. The COFAR considered this but 
determined that doing so would be excessively administratively 
burdensome for non-Federal entities, and is not necessary to assure 
accountability as long as non-Federal entities have appropriate records 
that meet the standards as described in the guidance. The COFAR 
recommended further edits to better streamline this section of the 
guidance on financial management that was previously more scattered 
throughout the guidance, such as incorporating documentation standards 
previously in the audit requirements into this section.
200.303 Internal Controls
    In response to comments that suggested that efforts to mitigate 
risks of waste, fraud, and abuse would be strengthened by a more 
explicit reference to existing internal control requirements issued by 
the Government Accountability Office (GAO) and the Committee of 
Sponsoring Organizations of the Treadway Commission (COSO), the COFAR 
recommended including this new section of the guidance which makes 
explicit non-Federal entity's responsibilities with regard to effective 
internal controls. In response to comments expressed regarding controls 
over sensitive information, the COFAR recommended adding language to 
make explicit a non-Federal entity's responsibility for safeguarding 
protected personally identifiable information (PII) and information 
designated as sensitive. This new language will result in stronger 
policies for protecting this information across Federal awards.
200.305 Payment
    Comments noted with concern that the proposal included language 
from OMB Circular A-102 which required entities to remit interest 
payments due to Federal agencies promptly across multiple agencies. The 
final guidance reinstates and expands applicability of existing 
language from OMB Circular A-110 that instructs non-Federal entities to 
remit interest earned on Federal awards annually to the Department of 
Health and Human Services Payment Management System. This will result 
in a much less burdensome annual payment process.
    In addition, this section has been revised to more accurately 
reflect the requirements in 31 U.S.C. chapter 65 and implementing 
Treasury Department regulations in 31 CFR Part 205 Rules And Procedures 
For Efficient Federal-State Funds Transfers. All requirements for 
payments to states are set forth in 31 CFR Part 205. Accordingly, the 
payment section now covers payments to states in paragraph (a) and 
refers to the Treasury requirements. Payment requirements for other 
non-Federal entities are set forth in the rest of the section.
200.306 Cost Sharing or Matching
    Many comments were supportive of the proposed language stating that 
voluntary committed cost sharing is not expected under Federal research 
proposals and is not to be used as a factor in the review of 
applications or proposals. Federal agencies recommended adding that 
such cost sharing may be considered when in accordance with regulation 
and included in the notice of funding opportunity. In addition, 
commenters suggested that the final guidance incorporate existing 
guidance that only mandatory cost sharing or cost sharing specifically 
submitted in the project budget shall be included in the organized 
research base for computing indirect (F&A) costs for research projects. 
The COFAR considered the feedback and recommended the addition.

Subtitle III Procurement Standards

    Subtitle III Procurement Standards takes the majority of the 
language from OMB Circular A-102. In the NPG, OMB requested comments on 
whether the inclusion of this language would be administratively 
burdensome for non-Federal entities currently subject to A-110. 
Responses indicated that it could be, and pointed to a few specific 
areas recommending refinement. The COFAR recommended keeping the A-102 
language over the A-110 language because it considered this language to 
be better able to mitigate the risk of waste, fraud, and abuse. In 
response to the comments received, the COFAR recommended the specific 
changes described as follows.
200.318 General Procurement Standards
    Commenters were concerned about possible administrative burden 
resulting from the requirement in paragraph (b) to maintain a contract 
administration system that ensures contractors perform in accordance 
with the terms, conditions and specifications of their contracts and 
delivery orders. The COFAR considers this to be a requirement that 
already exists in OMB Circular A-110, just perhaps not recognized due 
to different language. The COFAR recommended clarifying the language to 
require non-Federal entities to maintain ``oversight'' rather than a 
``system'' to eliminate potential confusion over the standards of the 
system and to conform more explicitly to existing guidance.
    Commenters recommended that the conflict of interest language found 
in paragraph (c) of this section be expanded to provide guidance on 
conflicts of interest for Federal awards more broadly. The COFAR 
considered this, but found that many Federal agencies already have 
conflict of interest policies, and these are fairly specific and vary 
by Federal agency. The COFAR recommended treating conflict of interest 
more broadly separately as described in section 200.112 Conflict of 
Interest, and also recommended expanding the conflict of interest 
guidance in this section to include organizational conflict of 
interest. This expansion will require non-Federal entities to have 
strong policies preventing organizational conflicts of interest which 
will be used to protect the integrity of procurements under Federal 
awards and subawards.
    Commenters were concerned that language in the NPG requiring a 
review of proposed procurement methods by Federal awarding agencies 
would add an unnecessary layer of administrative burden to the process. 
The COFAR concurred and recommended that the language be removed from 
the final guidance.

[[Page 78598]]

    Language in paragraphs (d), (e), and (f) is longstanding language 
which has always encouraged state and local governments subject to A-
102 to avoid duplicative purchases and to enter into common 
procurements to promote efficient use of Federal awards. Comments 
recommended strengthening the language in light of OMB's 2012 Shared 
Services Strategy for Federal agencies encouraging the use of ``shared 
services'' for increased efficiency. The COFAR recommended 
strengthening the language in line with comments received. Additional 
changes as noted below in the cost principles are further intended to 
facilitate these types of arrangements.
    Commenters were concerned that the requirement in paragraph (i) 
requiring the maintenance of records sufficient to detail the history 
of performance would similarly create administrative burden. The COFAR 
considered this requirement to be an important one for documenting the 
integrity of the transaction and recommended it be retained.
    Commenters were concerned that language in the NPG, which required 
information concerning any protests of a procurement to be provided to 
the Federal awarding agency, would create an unnecessary layer of 
administrative burden to that process. The COFAR concurred, and that 
language has been removed from the section.
200.319 Competition
    Commenters were concerned that language this section, which 
prohibits the use of geographic preference in solicitations, would put 
some non-Federal entities in conflict with the requirements of state 
law in some cases where state laws require such preferences. The COFAR 
considered this, but ultimately determined that such preferences could 
result in the non-Federal entity not making the most efficient possible 
use of the funds received under a Federal award, and so recommended the 
language remain unchanged. Where there is a conflict between state or 
tribal law and this guidance as implemented in regulation with respect 
to the administration of a Federal award, this Federal guidance 
prevails.
200.320 Methods of Procurement To Be Followed
    Commenters were concerned that the methods of procurement this 
section might be overly proscriptive and might prevent entities from 
making purchases from specific contractors where such purchases were 
necessary, especially for example, for the integrity of a research 
project. The COFAR considered the language and recommended that with 
minor clarifications these methods, which include sole source 
procurements with justification, be retained as they should be 
inclusive enough to account for such situations.
200.322 Procurement of Recovered Materials
    The COFAR also recommended including language in paragraph (f) on 
the procurement of recovered material to reiterate non-Federal 
entities' obligations under section 6002 of the Solid Waste Disposal 
Act, as amended by the Resource Conservation and Recovery Act.

Subtitle IV Performance and Financial Monitoring and Reporting

200.328 Monitoring and Reporting Program Performance
    Some language in this section that had been included in the NPG 
aligning requirements with those in OMB Circular A-11 were found by 
Federal agencies to be overly broad, and have instead been replaced by 
more narrow language in section 200.102 Exceptions. The more specific 
language is designed to encourage evidence based program design.
    The final guidance also includes language from existing guidance 
that had been dropped from the NPG noting that reporting should not be 
required more frequently than quarterly. In addition, similar language 
to that in section 200.501 on Standards for Performance and Financial 
Management notes that performance reports are subject to the Paperwork 
Reduction Act requirements and should use OMB-approved governmentwide 
information collections.
200.329 Reporting on Real Property
    The language in this section is based on the supplementary 
information provided in the purpose section of the Final Notice of the 
Real Property Status Report (RPSR) form SF-429 available at 75 FR 56540 
published September 16, 2010.

Subtitle V Subrecipient Monitoring and Management

    This section was proposed in the NPG as section 200.501, but the 
COFAR recommended it be reordered in the final guidance for a more 
logical flow of post-award requirements.
200.331 Requirements for Pass-Through Entities
    Many commenters were concerned that this section could expand the 
monitoring requirements for subrecipients significantly and result in 
increased administrative burden. In addition to re-ordering certain 
elements of the NPG language for clarity as some commenters suggested, 
the COFAR recommended the following further modifications:
    In paragraph (a), data elements that are required to be included in 
subawards are aligned with those required to be included by Federal 
awarding agencies in Federal awards in section 200.210 Information 
Contained In A Federal Award.
    Comments on the proposed language requiring pass-through entities 
to include an indirect cost rate in the subaward were highly positive, 
but suggested that the de minimis rate as outlined in section 200.414 
Indirect (F&A) Costs should be higher. Commenters were concerned that 
pass-through entities might decline to negotiate, and this would make 
the de minimis rate more likely a de facto rate for subrecipients. The 
COFAR considered this feedback but determined that as an automatic rate 
without any review of actual costs, the rate should remain at the 
conservative levels discussed in that section to protect the Federal 
government against excessive over reimbursement.
    Comments noted concern that as stated the language broadened pass-
through entity responsibility for monitoring subrecipients particularly 
with respect to audit follow-up. The COFAR recommended modifications to 
clarify that the required monitoring of subrecipients is limited to 
reviewing any performance and financial reports that the pass-through 
entity has decided to require in order to meet their own requirements 
under the terms and conditions of the Federal award, following up, 
ensuring corrective action, and issuing management decisions on 
weaknesses found through audits only when those findings pertain to 
Federal award funds provided to the subrecipient from the pass-through 
entity. This is consistent with existing requirements. Language is 
further modified to clarify that pass-through entities must only 
verify, rather than ensure, that a subrecipient has an audit as 
required by Subpart F Audit Requirements. As a result of these 
clarifications, the requirements for subrecipient monitoring are 
substantively unchanged from existing guidance.

[[Page 78599]]

Subtitle VI Record Retention and Access

200.333 Retention Requirements for Records
    The final guidance maintains and clarifies the existing requirement 
that records be retained for three years from the date of submission of 
the final expenditure report. The COFAR considered alternative 
scenarios proposed by commenters, and recommended that the proposed 
language be retained. The COFAR noted that this length can be extended 
if required by statute or with an exception from OMB, but that in most 
cases it is sufficient.
200.335 Methods for Collection, Transmission and Storage of Information
    In addition, in response to the May 2013 Executive Order on Making 
Open and Machine Readable the New Default for Government Information, 
as well as to comments requesting that the guidance in general be 
updated to reflect 21st century methods of communicating, the COFAR 
recommended a new paragraph be added. The new paragraph (c) adds 
language on methods for the collection, transmission, and storage of 
information, which combines language that had been previously scattered 
throughout the guidance to make clear that electronic, open, machine 
readable information is preferable to paper, as long as there are 
appropriate and reasonable internal controls in place to safeguard 
against any inappropriate alteration of records.

Subtitle VII Remedies for Noncompliance

200.338 Remedies for Noncompliance
    Commenters suggested that this section, which was titled 
``Termination and Enforcement'' in the NPG, should be expanded to more 
accurately describe the actions that could be taken under enforcement. 
The COFAR recommended this change.
200.339 Termination
    Commenters suggested that language should be added to allow for 
Federal agency termination for cause, because situations often arise 
beyond the Federal agency's or non-Federal entity's control which may 
require awards to be terminated. This language would prove useful in 
situations like those encountered during implementation of the Recovery 
Act or Sequestration, where congressional mandates encouraged expedited 
performance, or changes to appropriated amounts require modifications 
to programs. The COFAR recommended these additions.
200.343 Closeout
    The proposal included expanded guidance on closeout, to help 
strengthen Federal agencies policies for this process in line with 
OMB's July 2012 Controller Alert. Commenters recommended this language 
be modified to extend the closeout period for an award from 180 days to 
the more realistic timeframe of one year, in addition to the clarifying 
language that non-Federal entities have 90 days from the end date of 
the period of performance to submit all final reports, and also to 
clarify that the one-year period begins once final reports have been 
received from the non-Federal entity. The COFAR recommended the 
addition.
200.344 Post-Closeout Adjustments and Continuing Responsibilities
    Commenters suggested that language be added to limit the period 
when Federal agencies may disallow costs to within the three-year 
record retention period required under section 506 Record Retention and 
Access. The COFAR recommended the addition.
200.345 Collection Of Amounts Due
    As with section 200.343 Post-Closeout Adjustments and Continuing 
Responsibilities, commenters recommended language to limit the 
collection period to within the three-year record retention period 
required under section 200.333 Retention Requirements for Records. The 
COFAR noted that the Federal government has the right to collect 
amounts due at any point, and while recognizing that a determination of 
disallowance should be made within the record retention period, did not 
recommend the addition in this section.
Section B: Subpart E and Appendices III-VIII: Cost Principles. Reforms 
to Cost Principles (Circulars A-21, A-87, and A-122)
    This section discusses proposed changes to the OMB cost-principle 
circulars that have been placed at 2 CFR Parts 220, 225, and 215 
(Circulars A-21, Cost Principles for Educational Institutions; Circular 
A-87, Cost Principles for State, Local and Indian Tribal Governments; 
and Circular A-122, Cost Principles for Non-Profit Organizations). The 
COFAR considered adding the hospital cost principles to the guidance, 
but decided that doing so would require in depth further review that 
would be best done as part of a separate process at a later date.
200.400 Policy Guide
    Commenters requested that the final guidance include language which 
was previously included in OMB Circular A-21 to address the dual role 
of students in research at IHEs. The COFAR recommended that a slightly 
updated version of the language be included.
    Other commenters suggested that to better mitigate the risks of 
waste, fraud, and abuse, the final guidance include language to make 
explicit that non-Federal entities are not permitted to earn or keep 
any profit resulting from Federal awards, unless expressly authorized 
by the applicable award conditions. The COFAR recommended the language 
be included.
200.401 Application
    At the suggestion of commenters, the COFAR recommended this section 
include additional language to clarify that when a non-Federal entity 
has a Cost Accounting Standards (CAS) covered contract subject to the 
requirements of 48 CFR 995, those requirements do not automatically 
extend beyond the covered contract to other awards, though the non-
Federal entity is required to maintain consistent application of cost 
accounting standards.
200.407 Prior Written Approval (Prior Approval)
    In response to comments, the COFAR recommended the title of this 
section be changed from ``Advance Understanding'' to more closely 
mirror the language used in the guidance. In addition, a list of 
instances of sections that discuss conditions under which prior 
approval is required is included to ensure that these requirements are 
transparent and to reduce burden by providing both Federal agencies and 
non-Federal entities a complete listing of where all these types of 
requirements may be found.
200.413 Direct Costs
    Paragraph (d) includes the language in this section that was 
proposed as a change to clarify the circumstances under which it is 
allowable to directly charge administrative support Costs. This 
language was proposed in order to address an ongoing inconsistency in 
the definition of direct costs; which required administrative costs to 
be charged indirectly but otherwise provided that costs are direct when 
they may be specifically allocated to one award; regardless of what 
activities they support.
    Many commenters were supportive of the change with some concerns 
about

[[Page 78600]]

the way it was proposed. Some commenters were concerned that the 
conditions as originally articulated were not sufficiently clear for 
auditors to determine whether a directly charged administrative cost 
was allowable or not. Other commenters were concerned that the 
requirement to have these costs approved in the budget was more 
restrictive than otherwise standard rebudgeting practices and would 
unduly constrain implementation. The COFAR considered the issue and 
recommended adding explicit language to clarify that when these costs 
are allowable, they must have the prior approval of the Federal 
awarding agency. Additional language was added to allow for this 
approval after the initial budget approval in order to allow for 
flexibility in implementation. The clarified language addresses both 
sets of concerns; clarifying conditions for allowability while 
providing additional flexibility in project management.
200.414 Indirect (F&A) Costs
    In response to a wide range of feedback from diverse stakeholders, 
Section 615 Indirect Costs contained a number of proposals for making 
indirect costs more transparent and consistent for non-Federal 
entities. These were well received by most stakeholders who submitted 
comments, and have mostly been retained as proposed, with some 
modifications.
    Language in paragraph (c) provides for the consistent application 
of negotiated indirect cost rates, and articulates the conditions under 
which a Federal awarding agency may use a different rate. These 
conditions include approval of the Federal awarding agency head (as 
delegated per standard delegations of authority) based on documented 
justification, the public availability of established policies for 
determinations to use other than negotiated rates, the inclusion of 
notice of such a decision in the announcement of funding opportunity, 
as well as in any pre-announcement outreach, and notification to OMB of 
the decision. Comments received regarding these proposals were mostly 
positive, and indicated that these provisions would likely lead to 
greater consistency, and transparency in the application of indirect 
cost rates governmentwide. Some commenters recommended that for even 
greater consistency decisions about the use of rates be subject to OMB 
approval rather than Federal agency approval. The COFAR considered 
this, but ultimately recommends that responsibility for administering 
Federal financial assistance programs continue to rest with the Federal 
awarding agencies, and that the conditions set by OMB for these 
determinations are stringent enough to ensure that they do not occur 
without strong justification. The COFAR did not recommend the change.
    Language in paragraph (f) provides that any non-Federal entity that 
has never had a negotiated indirect cost rate may use a de minimis rate 
of 10% of modified total direct costs. Commenters recommended that this 
rate should be higher--either at 15% or 20% respectively. They were 
concerned that because for smaller organizations the capacity to 
conduct full negotiations is often out of reach, this rate will most 
likely be the de facto rate rather than the de minimis rate. The COFAR 
considered the possibility of raising this rate, but ultimately 
recommended that as an automatic de minimis rate without analysis of 
actual costs it should stay at a conservative level in order to 
minimize the possibility that the Federal government over reimburse for 
these costs. Additional comments also suggested that to further reduce 
burden for both recipients and the Federal government, this de minimis 
rate be allowable for use indefinitely, and the COFAR concurred.
    Language in paragraph (g) provides an option for entities with an 
approved federally negotiated indirect cost rate to apply for a one-
time extension without further negotiation subject to the approval of 
the negotiating Federal agency. Commenters responded positively to this 
option, though some suggested that the extension period be longer, or 
that additional extensions be allowable. The COFAR considered these, 
but found it important to renegotiate after an initial 4-year extension 
period to ensure that such rates continue to be based on actual costs. 
The COFAR recommended this provision remain as proposed.
200.415 Required Certifications
    Comments recommended that in order to better mitigate risks of 
waste, fraud, and abuse, required certification language be 
strengthened to include specific language acknowledging the statutory 
consequences of false certifications. The COFAR concurred with the 
recommendation.
200.419 Cost Accounting Standards and Disclosure Statement
    The NPG proposed deleting the requirements that apply only to IHEs 
to comply with the Federal Acquisition Regulation (FAR) Cost Accounting 
Standards (CAS) and to file a Disclosure Statement when their Federal 
awards total $25 million or more. Some commenters responded favorably 
that this would reduce a source of administrative burden, but others 
were concerned, stating that this disclosure statement was a critical 
tool to mitigating waste, fraud, and abuse and opposed its elimination. 
Since the most likely source of burden occurs when an entity crosses 
the threshold for the first time, the COFAR recommended reinstating the 
requirement at the new threshold of $50 million to be consistent with 
current FAR requirements.
    The COFAR further noted that for most IHEs that have already passed 
the threshold, the biggest source of burden associated with these 
requirements arises from uncertainty when awaiting Federal agency 
approval for a submitted change in a Disclosure Statement. In response, 
instead of requiring Federal agency approval for changes, the COFAR 
recommended the final guidance require only that non-Federal entities 
submit their changes six months in advance of implementing a change. If 
they receive no indication of an extension of the review period or of 
concern from a Federal agency, they may proceed with the implementation 
without further delay. The COFAR's recommended solution would thus 
continue to require use a valuable tool for mitigating risks of waste, 
fraud, and abuse while eliminating key sources of administrative burden 
and uncertainty for non-Federal entities that can lead to unnecessary 
audit findings.

Subtitle VI General Provisions for Selected Items of Cost

    Some commenters noted concern that the current item of cost for 
``Communication costs'' had been deleted from the proposed guidance. 
The COFAR considered this, but considered communications costs to be 
straightforward enough to be easily covered by the guidance in Subtitle 
II: Basic Considerations. The COFAR notes that all items not 
specifically covered in the items of cost are subject to the guidance 
in Subtitle II Basic Considerations, and that this section should be 
read as a guiding framework for all specific discussions of cost in the 
section that follow.
200.421 Advertising and Public Relations
    Commenters noted that it was important that costs relating to 
advertising and public relations allow for costs of advertising program 
outreach and other specific costs necessary to meet the requirements of 
the federal award. The COFAR recommended the addition.

[[Page 78601]]

200.422 Advisory Councils
    Commenters were concerned that the proposed guidance disallowed 
previously allowable costs for documented advisory council costs that 
benefited a federal award.
    The COFAR reviewed the language and noted that the revised language 
is clarifying in nature and does not substantively change the existing 
requirements, noting that these costs are still allowable with prior 
approval from the Federal awarding agency. The COFAR did not recommend 
a change.
200.425 Audit Services
    Commenters recommended that this section be clarified to include 
reference to a non-Federal entity's fiscal year in noting that when 
Federal awards total less than $750,000 the non-Federal entity is 
exempted from having a single audit. The commenters wanted the addition 
of the fiscal year clause in order to be consistent with Subpart F. The 
COFAR recommended the addition.
    Commenters noted concern for language which stated that other audit 
costs were allowable if included in an approved cost allocation plan or 
an indirect cost proposal, or if it was approved by the Federal 
awarding agency as a direct cost to the Federal award.
    Upon further review, the COFAR notes that though this language 
allowing costs of other audits has been in place for years, it is not 
consistent with the Single Audit Act, and so recommended deleting it. 
Instead, the COFAR recommends language that allows the costs of a 
financial statement audit for a non-Federal entity that does not 
currently have a Federal award when included in the indirect cost pool 
as part of a cost allocation plan or indirect cost proposal. These 
audits may be useful to the Federal agency negotiating an indirect cost 
rate, and the COFAR does not believe them to be in conflict with the 
Single Audit Act.
    The COFAR further recommends clarification that agreed-upon-
procedures are defined in section 2(A) of the GAGAS attestation 
standards, and this section will be aligned with the types of 
compliance requirements in the compliance supplement once updated.
200.428 Collections of Improper Payments
    The COFAR recommends that the last sentence of this section, which 
describes the collection of improper payments when time elapses between 
the collection of funds from entities and their expenditure, be deleted 
because it is redundant and duplicates what is said in section 200.305 
Payment, which is also cross-referenced. The result is more streamlined 
language that articulates the requirement more clearly.
200.430 Compensation--Personal Services
    The COFAR began review of these requirements under this reform 
effort based on feedback that the existing requirements had become 
extremely administratively burdensome, and as written, the guidance did 
not allow for advances in technology, record keeping, and internal 
controls, which allow non-Federal entities to document these costs in 
increasingly efficient and sophisticated ways. In addition, the COFAR 
considered the long-term goal of tying justification for salaries to 
the achievement of programmatic objectives rather than measurement of 
effort (hours) expended. Though such performance-oriented reporting is 
not currently possible across the diverse suite of Federal assistance 
programs, the advances noted above allow for alternatives to the 
current requirements that can provide an even higher standard of 
accountability without burdensome process requirements. The COFAR 
received many comments on this proposed language indicating that the 
changes had potential for positive impact but recommended modifications 
to the proposed language.
    Comments suggested that language be added to include more detail as 
to the general explanation of what compensation for personal services 
is allowable.
    The COFAR considered the current level of detail to be sufficient, 
especially since any personal services not listed in this section would 
be addressed in section 200.431 Compensation--Fringe Benefits.
    Commenters suggested that compensation surveys providing data 
representative of the labor market involved were inferior to the other 
methods described in the NPG for evaluating the reasonableness of 
compensation for personal services. Others commented that with regard 
to the basis for salary rates, unless there is prior approval by the 
Federal awarding agency, charges of a faculty member's salary to a 
Federal award should not exceed the proportionate share of the 
institutional base salary for the period during which the faculty 
member worked on the award.
    The COFAR recommended additions to support both proposals.
    Commenters recommended deleting the specific reference to conflict 
of interest policies, noting that there is no reason to highlight any 
one institutional policy in this section over others. They also 
recommended deleting the rest of the section allowing Federal agencies 
to negotiate alternative arrangements when non-Federal entity policy is 
deemed inadequate. Commenters also recommended the deletion language 
which provided special consideration in determining allowability for 
any change in the non-Federal entity's compensation policy because they 
found it redundant to other language describing the compensation for 
personal services and the reasonableness with which these services need 
to be proven in order for compensation to be expected.
    The COFAR concurred with the recommended deletion of conflict of 
interest policy but did not recommended further changes on special 
considerations which they found to provide important provisions that 
mitigate the risks of waste, fraud, and abuse.
    Another comment recommended deletion of language on allowable 
incentive compensation because the commenter believed this provision 
has resulted in cost disallowances and is burdensome. The COFAR 
disagreed and recommended that the section stay the way it was 
originally proposed.
    Comments noted with concern that that nonprofit organizations are 
not subject to the same rules as other types of non-Federal entities. 
The COFAR considered that due to the unique facets of nonprofit 
organizations, these flexibilities are important, and recommended that 
paragraph (g) stay the way it was originally proposed.
    Commenters proposed major changes to paragraph (h), which provides 
provisions specific to IHEs describing conditions that require special 
consideration and possible limitations in determining allowable 
compensation costs. They recommended re-organization of the section for 
clarity and an explicit recognition of Institutional Base Salary rate 
(a type of policy most IHEs have well defined) instead of references to 
a more loosely defined ``base rate''. The COFAR concurred and 
recommended most of the suggested changes.
    Many diverse stakeholders submitted comments on paragraph (i) 
Standards for Documentation of Personnel Expenses (also known 
informally as ``time and effort reporting''). Many agreed on the need 
for clearer standards of the internal controls around these charges. 
Many commenters also requested additional flexibility in how these 
standards could be implemented, while others recommended stricter 
uniformity in the provision of specific

[[Page 78602]]

certification language that would better prevent and facilitate 
prosecution of fraud. Some commenters that allowance for costs based on 
estimates could result in a lack of sufficient documentation that the 
costs were in accordance with the work performed.
    The COFAR agreed with the recommendations on the risks in this area 
and the need for a strong system of internal controls to document 
compliance. This final guidance requires non-Federal entities to comply 
with a stringent framework of internal control objectives and 
requirements. The guidance also requires that when interim charges are 
based on budget estimates, the non-Federal entity's system of internal 
controls must include processes to ensure necessary adjustments are 
made such that the final amount charged to Federal awards is proper.
    The COFAR considered recommendations from commenters to include 
specific certification language, but was concerned that requiring 
specific language at this level would result in audit findings more 
likely to be based on incorrect documentation rather than uncovering 
weaknesses in internal control or instances of fraud. Further, the 
COFAR notes that other certifications included by recipients in their 
applications and indirect cost rate agreements provide a layer of 
assurance that can be used in preventing and prosecuting instances of 
fraud.
    The COFAR believes this focus on overall internal controls provides 
greater accountability as the non-Federal entity must ensure that the 
total internal control system for documenting personal expenses 
provides proper accountability and the auditor must test these internal 
controls as part of the Single Audit requirements in Subpart F. While 
many non-Federal entities may still find that existing procedures in 
place such as personal activity reports and similar documentation are 
the best method for them to meet the internal control requirements, 
this final guidance does not specifically require them. The focus in 
this final guidance on overall internal controls mitigates the risk 
that a non-Federal entity or their auditor will focus solely on 
prescribed procedures such as reports, certifications, or certification 
time periods which alone may be ineffective in assuring full 
accountability.
    While this approach may increase burden on non-Federal entities 
with weak internal controls, the COFAR believes overall it will reduce 
burden by providing non-Federal entities the ability to implement the 
internal control systems and business processes that best fit a non-
Federal entity's needs. Also, placing requirements at the internal 
control objective level is consistent with the requirements in section 
200.303 Internal Controls. Specifically, the COFAR recommended stating 
explicitly that charges to Federal awards for salaries and wages must 
be based on records that accurately reflect the work performed. Further 
clarifications describe the required controls in more detail.
    The COFAR received positive feedback on proposed language that 
provided for Federal agencies to approve alternative methods where 
proposals are submitted that are more performance oriented or in 
instances of approved blended funding and recommended it be retained.
    The combined result of these changes is that non-Federal entities 
have clear high standards for maintaining a strong system of internal 
controls over their records to justify costs of salaries and wages, and 
also additional flexibility in the processes they use to meet these 
standards. This should allow them to be more accountable for these 
costs at less expense.
200.431 Compensation--Fringe Benefits
    Commenters recommended eliminating a requirement for awarding 
agency pre-approval for insurance payments based on consistent entity 
policy for actual payments to or on behalf of employees or former 
employees for unemployment compensation or workers' compensation. The 
COFAR agreed and recommends removing the language.
    Based on recommendations from diverse comments, the COFAR 
recommended clarification of the applicability of GAAP to entities 
using accrual based accounting. The COFAR also recommends that prior 
approval by the Federal awarding agency or cognizant agency be given 
before an indirect cost is charged to the Federal award for abnormal or 
mass severance pay.
    Federal agencies recommended that all severance in excess of normal 
severance policy in accordance with institutional policy or other 
conditions for allowability discussed in the guidance should be 
unallowable, not just golden parachute packages. The COFAR recommended 
the proposed changes to prevent excessive severance payments.
    Finally, many commenters commended the inclusion of family-related 
leave among the examples of types of leave that may be allowed 
according to the non-Federal entity's written policies. The COFAR 
recommended keeping this language as proposed.
200.432 Conferences
    The language from the proposed item of costs for External Meetings 
and Conferences has been clarified to better articulate the limits on 
the types of gatherings for which these costs are allowable. In 
addition, the language clarifies that the costs of identifying, but not 
providing, locally available dependent care options for attendees are 
allowable. The result is that non-Federal entities have clear limits 
around conference spending which should limit these costs 
appropriately.
    Further, without adding significant cost, the policy encourages 
family-friendly practices that will better enable employees of non-
Federal entities with dependent care responsibilities to progress in 
their careers. This is an outcome which was noted in comments as one 
that is essential for advancing the careers of women in science, 
technology, engineering and math. Similar outcomes are supported by 
reforms to 200.474 Travel Costs and 200.431 Compensation--Fringe 
Benefits.
200.433 Contingency Provisions
    Many commenters noted that this proposed section made positive and 
helpful clarifications which enable a better understanding of how 
contingency costs may be budgeted and charged. Some commenters 
recommended additional provisions for further clarity on the types of 
costs that are allowable for contingencies, and recommended additional 
controls on how Federal agencies provide oversight over these funds as 
part of their Federal awards. In particular, commenters suggested 
adding a requirement to track funds that are spent as contingency funds 
throughout the non-Federal entity's records.
    The COFAR reviewed the language, and concluded that it does provide 
sufficient controls to Federal agencies to manage Federal awards. The 
COFAR noted that: (i) though a diversity of techniques are available to 
establish contingency estimates, the estimates must be based on 
broadly-accepted cost estimating methodologies, (ii) budgeted amounts 
would be explicitly subject to Federal agency approval at time of 
award, (iii) funds would not be drawn down unless in accordance with 
all the other applicable provisions of this guidance (such as Subtitle 
II Basic Considerations), and (iv) actual costs incurred must be 
verifiable from the non-Federal entity's records. The

[[Page 78603]]

COFAR considered this last requirement to be sufficient for tracking 
the use of funds, as contingency funds should most properly be charged 
not as ``contingency funds'' specifically, but according to the cost 
category into which they would naturally fall. The COFAR did not 
recommend any changes to the proposed language.
200.434 Contributions and Donations
    Comments suggested that the value of a donated item, whether it is 
a good or a building, should not be charged to a Federal award as 
either a direct or indirect cost.
    The COFAR concurred and recommended changes accordingly. The COFAR 
also recommended clarifying that depreciation on donated assets is 
permitted in accordance with 200.436 Depreciation, as long as the 
donated property is not counted towards cost sharing or matching 
requirements. The COFAR also recommended consolidation of much this 
section with section 200.306 Cost Sharing Or Matching.
200.435 Defense and Prosecution of Criminal and Civil Proceedings, 
Claims, Appeals and Patent Infringements
    Commenters recommended that that all costs related to defense of 
criminal, civil, or administrative proceedings should be completely 
unallowable, regardless of disposition.
    The COFAR considered this but recommended keeping the language as 
it was originally proposed in order to preserve a wrongly accused 
defendant's ability to charge the Federal award for legal costs related 
to charges or claims for which the defendant ultimately receives a 
favorable disposition.
200.436 Depreciation
    Commenters suggested that allowable compensation for the use of 
their buildings, capital improvements, equipment, and software projects 
should be based on capitalization in accordance with GAAP instead of 
the Government Accounting Standards Board Statement Number 51.
    The COFAR agreed and recommended changing the language to reflect 
this change. The COFAR also recommend adding clarification that an 
asset donated to the non-Federal entity by a third party will have its 
fair market value documented at the time of the donation and shall be 
considered as the acquisition cost. Such assets may be depreciated or 
claimed as matching but not both.
    Commenters noted that proposed language on depreciating assets 
donated by a third party would prevent recipients from recovering 
depreciation on assets that might be purchased under non-Federal 
awards, but nevertheless used at least in part to support a Federal 
award. This exclusion would discourage efficiencies to Federal awards 
that could otherwise be gained through shared use of these assets. The 
COFAR agreed and recommended the proposed change.
200.437 Employee Health and Welfare Costs
    Commenters suggested that allowing costs to improve ``morale'' in 
this item as proposed would be difficult to distinguish from the 
language in the following item that disallows entertainment costs, 
potentially resulting in opportunities for waste, fraud, and abuse.
    The COFAR concurred and, to better mitigate these risks recommended 
eliminating references to morale, limiting this item to those for 
Health and Welfare as established in the non-Federal entity's 
documented policies.
200.438 Entertainment Costs
    Many diverse commenters noted the potential for conflicting 
guidance between this section as proposed and the guidance under 
200.437 Employee Health And Welfare Costs, as well as confusion about 
exceptions for entertainment under the terms and conditions of the 
award.
    In addition to the clarifications to 200.437 Employee Health And 
Welfare Costs, the COFAR recommended clarifying that any exceptions 
require a programmatic purpose as well as written prior approval from 
the Federal awarding agency.
200.439 Equipment and Other Capital Expenditures
    Many diverse commenters noted opportunity for clarification in this 
section. The COFAR recommended addressing most of these either in 
consolidated definitions in the definitions section or through 
appropriate consolidations with the language in Subpart D--Post Federal 
Award Requirements, section Subtitle II Property Standards.
200.441 Fines, Penalties, Damages and Other Settlements
    Commenters suggested that the list of laws under which failure to 
comply could result in costs of fines and other penalties should 
include Tribal law. The COFAR recommended the addition.
    Commenters suggested that costs resulting from ``alleged 
violations'' and not just ``violations'' should be unallowable, except 
when they result directly from complying with the terms of a Federal 
award or are approved in advance by the Federal awarding agency. The 
COFAR recommended the addition.
200.444 General Costs of Government
    Commenters suggested that to be consistent with current policy this 
item should include language that allows up to 50% of the portion of 
salaries and wages for the chief executive and his or her staff 
supporting Federal awards for Indian Tribes and Councils of Government 
to be allowable as indirect costs without further justification. The 
COFAR recommended the addition.
200.445 Goods or Services for Personal Use
    Diverse stakeholders suggested additional types of costs that could 
be explicitly discussed under this item. The COFAR considered these but 
found them to be items either addressed elsewhere in the guidance or 
covered under Subpart II Basic Considerations. The COFAR did not 
recommend changes to this section.
200.446 Idle Facilities and Idle Capacity
    Commenters requested further clarification on the circumstances 
under which costs of idle facilities are unallowable versus allowable. 
The COFAR recommended changes for clarification and to ensure sure that 
these fluctuations are allocated properly to all benefiting programs.
    Other commenters suggested that the one year time limit that the 
guidance provides on funding idle facilities may be arbitrary, and 
noted that often the projects which require this flexibility are multi-
year projects, where a two year horizon might be considered an 
extremely aggressive timeline.
    The COFAR considered that the exact requirement is for a 
``reasonable period of time, ordinarily not to exceed one year'', which 
provides some flexibility on the timeline when needed, while still 
setting expectations of limits. The COFAR did not recommend changes to 
this language.
200.447 Insurance and Indemnification
    Commenters suggested that policy allowing Federal agencies to 
choose whether to participate in losses not covered by the recipient's 
self-insurance reserves is inappropriate and burdensome to entities, 
and also contradicts other provisions in the language.
    The COFAR agreed and recommended that the sentence be deleted. The 
COFAR also recommended deleting

[[Page 78604]]

policy that the Federal government will participate in actual losses of 
a self-insurance fund that are in excess of the reserves, to protect 
the Federal government from inappropriate exposure to these types of 
costs.
    Commenters recommended that language discussing fees paid to or on 
behalf of employees or former employees for worker's compensation, 
unemployment compensation, be moved to the section on fringe benefits. 
The COFAR recommended the language be moved.
200.448 Intellectual Property
    One comment requested use of a more commonly understood phrase than 
``searching the art'', which is currently used in the guidance.
    The COFAR determined that this is a term of art and is the 
appropriate phrase for this guidance. The COFAR did not recommend a 
change.
200.449 Interest
    Commenters noted that they preferred the organization of the 
language used in the A-21 circular, suggesting that this section begin 
with the general principle that costs incurred for interest on borrowed 
capital, temporary use of endowment funds, or the use of the non-
Federal entity's own funds are unallowable, followed by exceptions. The 
COFAR recommended the change in organization.
    Commenters responded positively to the more explicit inclusion of 
information technology in the definition of capital assets. They also 
recommended that the date for the provision to take effect be based on 
a non-Federal entity's fiscal year rather than a specific date. The 
COFAR recommended moving this and all other definitions to the 
streamlined definitions section and concurred with the adjustment to 
the effective date.
    Some commenters suggested recipient's limits for claims for federal 
reimbursement of interest costs to the least expensive alternative and 
that criterion for the non-Federal entity to make an equity 
contribution of at least 25% of the purchase debt arrangements over a 
million dollars be removed. Other commenters suggested that these 
should remain in order to protect Federal government interests. The 
COFAR did not recommend removing these provisions.
    Commenters suggested that extra criteria for nonprofit 
organizations is not appropriate and ask that all the conditions 
specifically for nonprofit organizations be removed. The COFAR 
recommended deleting all but one of specific conditions for nonprofit 
organizations. The COFAR recommended keeping the provision that 
requires that the non-profit organization had to have incurred the cost 
after September 29, 1995, in connection with acquisitions of capital 
assets that occurred after the data. The COFAR also recommended 
deleting any additional conditions for non-profit organizations that 
are duplicative of CAS.
    Commenters suggested adding a provision to ensure that interest 
attributable to a fully depreciated asset is unallowable. The COFAR 
recommended the addition.
200.453 Materials and Supplies Costs, Including Costs Of Computing 
Devices
    The COFAR recommended moving the definition of supplies to the 
definition section, and feedback on that definition is discussed there.
200.454 Memberships, Subscriptions, and Professional Activity Costs
    Commenters noted that it was unclear what was meant by 
``substantially engaged in lobbying''. The COFAR recommended 
substituting ``whose principal purpose is lobbying'' and adding a 
citation to section 200.450 Lobbying to clarify.
200.455 Organization Costs
    Commenters recommended parity in application of this item across 
types of non-Federal entities. The COFAR recommended making this 
section applicable to all stakeholders.
200.456 Participant Support Costs
    The proposed guidance included language on participant support 
costs that expands to all entities a provision which previously applied 
only to nonprofit entities, though moves the definition of these costs 
to the definition section. The proposal received mostly positive 
feedback from commenters. The COFAR recommended keeping this language 
and that treatment of participant support costs in the definition of 
modified total direct costs and appendices on indirect cost rates be 
modified in accordance with this guidance.
200.460 Proposal Costs
    Many comments were supportive of the proposed language, though some 
were concerned that the language allowing for other than indirect 
treatment with prior Federal agency approval could lead to 
inconsistencies. The COFAR recommended deleting this language to 
improve consistency and allow proposal costs to be charged only as an 
indirect cost.
200.461 Publication and Printing Costs
    Commenters suggested that language should be added to resolve a 
long-standing issue with charges necessary to publish research results, 
which typically occur after expiration, but are otherwise allowable 
costs of an award.
    The COFAR concurred with the comments and recommended additional 
language to clarify that non-Federal entities may charge the Federal 
award before closeout for the costs of publication or sharing of 
research results if the costs are not incurred during the period of 
performance of the Federal award.
200.463 Recruiting Costs
    Commenters suggested that since ``special emoluments, fringe 
benefits, and salary allowances'' that do not meet the test of 
reasonableness or do not conform with established practices of the 
entity would be unallowable regardless of where the personnel are 
currently employed; language should be clarified accordingly with the 
deletion of ``from other non-federal entities'' after the list of 
benefits that attract professional personnel. Commenters also noted 
that modifications were needed to clarify that when relocation costs 
incurred with the recruitment of a new employee have been funded in 
whole or in part as a direct cost to the federal award, and the newly 
hired employee resigns for reasons within the employee's control within 
12 months after hire, the non-Federal entity will be required to refund 
or credit only the Federal share of such relocation costs to the 
Federal government. The COFAR concurred with the suggested change.
    Commenters suggested that this section in its proposed form (and in 
existing guidance) fails to account for costs associated with obtaining 
critical foreign research skills and proposed additional language and 
standards to remediate the problem. Commenters recommended that costs 
associated with visas when critical skills are needed for a specific 
award should be allowed. The COFAR concurred with the recommended 
change.
200.464 Relocation Costs of Employees
    Commenters suggested that the costs of the ownership of the vacant 
former home after the settlement or lease date of the employees new 
permanent home should only be paid for up to 6 months to eliminate 
excessive charges to the Federal government. The COFAR concurred with 
the recommended change.

[[Page 78605]]

200.465 Rental Costs of Real Property and Equipment
    Commenters requested that an exception for Indian tribes to the 
provisions that allow ``less-than-arm's-length'' transactions only up 
to the actual costs of ownership. They suggest that this is a matter of 
tribal autonomy and a way to better support tribal enterprises. The 
COFAR considered the suggestion but determined that despite the unique 
government-to-government relationship with Indian tribes and the 
importance of tribal autonomy, allowing these transactions at higher 
than the costs of actual ownership would result in undue increases in 
costs to the Federal government. The COFAR did not recommend the 
change.
    Commenters recommended that rental costs under ``sale and lease 
back'' arrangements should only be allowable up to the actual costs of 
ownership, and not up to the amount that would be allowed had the 
entity continued to own the property. They also commented that language 
explaining that for clarity rental costs under ``less-than-arm's 
length'' leases are allowable only up to the amount as explained in 
paragraph (2) need not include that the costs are allowable up to the 
amount had the title to the property vested in the institution.
    Commenters suggested that the provisions of the General Accepted 
Accounting Principles should determine whether a lease is a capital 
lease or not. Commenters also suggested that language should be added 
prohibiting the charge of home office space and utilities charged to a 
Federal award.
    The COFAR recommended these proposed changes.
200.466 Scholarships and Student Aid Costs
    Commenters suggested that this section should reflect the dual role 
of students and that the language should make clear that voluntary 
committed cost sharing should not be used as a factor in the review of 
applications.
    The COFAR concurred with the recommended clarifications, but 
recommended they be more appropriately added in section 200.400 Policy 
Guide, and section 200.306 Cost Sharing Or Matching, respectively.
200.467 Selling and Marketing Costs
    Commenters suggested that a cross-reference to section 200.460 
Proposal Costs should be added to the existing cross reference to 
section 200.421 Advertising and Public Relations as allowable 
exceptions to the otherwise unallowable costs covered by this section. 
The COFAR concurred with the recommendation.
200.468 Specialized Service Facilities
    Commenters suggested introducing the concept of an ``equipment 
replacement fund''. Their concern is that when federally-funded 
equipment is being used, the depreciation charges on this equipment are 
not allowed to be included in the rates charged to users of the 
equipment. Consequently, this restricts the ability of the non-Federal 
entity to recover funds that could be used to replace the equipment in 
the future. Allowing non-Federal entities to establish an ``equipment 
replacement fund'' would help to ensure that institutions are in a 
position to fund future equipment without having to rely on equipment 
grants from research funding agencies. The COFAR considered this 
suggestion, but was concerned that allowing such costs would 
inappropriately increase costs under Federal awards and reduce the 
benefits intended to be achieved by the Federal award. The COFAR did 
not recommend the change.
    Commenters suggested that examples of costs of services provided by 
highly complex or specialized facilities operated by the entity are not 
needed.
    The COFAR considered the suggestion and although generally 
throughout the guidance has declined to include specific examples 
recommended that in this case the examples be kept as an important way 
to illustrate the intent of the language.
200.469 Student Activity Costs
    Upon review of this section, the COFAR recommended that though it 
primarily applies to IHEs, expanding this language to all entities 
would further mitigate risks of waste, fraud, and abuse.
200.471 Termination Costs
    Commenters suggested that the cross reference to an exception for 
reimbursement for a predetermined amount under proposed Subpart D--Post 
Federal Award Requirements, Subtitle II Property Standards did not 
exist in the document and recommended the cross-reference be deleted.
    Commenters suggested that while there is no substantive change in 
the proposed guidance from the existing circulars, they are unsure why 
indirect costs are being specifically cited with regard to settlement 
expenses, and were concerned the citation could be misinterpreted as 
somehow limiting the allowable indirect costs to only a portion of 
termination costs. They propose deleting the reference.
    The COFAR recommended making both proposed deletions.
200.472 Training and Education Costs
    Commenters indicated concern that the language allowing the costs 
of training and education for employee development is too open-ended 
and recommended more restrictive language.
    The COFAR considered the suggestion, but believes that the basic 
considerations for allowability in Subtitle II Basic Considerations 
provide adequate restrictions that will appropriately limit the risk of 
waste, fraud, and abuse. The COFAR did not recommend a change.
200.474 Travel Costs
    Commenters suggested that the proposed language allowing temporary 
dependent care costs was too open-ended and could increase risks of 
waste, fraud, and abuse.
    The COFAR concurred with the concerns raised and modified the 
language to provide more specific parameters for the conditions under 
which these costs are allowable. The result is language that provides, 
under specific and limited circumstances, a family-friendly policy that 
should allow for individuals with dependent care responsibilities to 
better balance their responsibilities to both their families and the 
Federal award.
200.475 Trustees
    Commenters noted that this section reverses existing language from 
OMB Circulars A-21 and A-122 where travel and subsistence costs of 
trustees, or directors, are allowable under certain conditions. They 
proposed that past policy from A-21 and A-122 be reinstated.
    The COFAR concurred and recommended that the costs for the 
nonprofit community and institutions be allowable, given those costs 
are also in line with section 200.474 Travel Costs.
Appendix III Indirect (F&A) Costs Identification and Assignment, and 
Rate Determination for Institutions of Higher Education (IHEs), 
paragraph B.4.c.
    Commenters noted that while many of those who do not currently 
benefit from the 1.3% utility cost adjustment currently allowed under 
A-21 appreciated the proposed new language, they would further 
appreciate the opportunity to suggest alternative indices to measure 
``effective square footage''.
    The COFAR considered this, but determined that such open ended 
adjustments to costs would result in increased risk of waste, fraud, 
and abuse. Further, some commenters expressed concern about the total 
costs

[[Page 78606]]

to Federal agencies that could result from these charges, particularly 
given the lack of conclusive data available to accurately project these 
costs. The COFAR concurred with the concern, and so recommended that 
while these charges should be based on actual costs, the amount 
recoverable should be limited to an amount equal to 1.3% of the IHE's 
indirect cost rate until such time as OMB and Federal agencies can 
better understand the cost implications of full reimbursement of actual 
costs and the potential implication for Federal programs.
Appendix V State/Local Government and Indian Tribe-Wide Central Service 
Cost Allocation Plans
    Under existing requirements, any ``major local government'' is 
required to submit a Cost Allocation Plan to its cognizant agency for 
indirect cost on an annual basis in order to claim its central services 
costs against Federal awards. The ``major local governments'' subject 
to this requirement, along with each cognizant agency assignment, are 
listed in the Federal Register notice dated January 6, 1986 (available 
at: http://www.whitehouse.gov/sites/default/files/omb/assets/financial_pdf/fr-notice_cost_negotiation_010686.pdf).
    The proposed guidance set the definition of ``major local 
government'' at $100 million in order to more accurately reflect the 
updated universe of such governments which has changed since 1986, and 
also to provide a threshold that will remain in place as the sizes of 
individual local governments fluctuates over time. Commenters inquired 
whether the new definition supersedes the 1986 listing.
    The COFAR noted the new definition of major local government does 
supersede the 1986 listing. The COFAR recommended adding this notice to 
the list of supersessions in section 200.104 Rescission and 
Supersession.
    In addition, the COFAR recommended a change to the guidance on 
cognizant agencies. The policy would remain as it is for indirect cost 
rates, with cognizance being based on direct Federal awards. However, 
for local governments' central service cost allocation plans, the COFAR 
recommended that cognizance is best governed by total Federal awards, 
in order to avoid a situation where direct funding for one program (for 
example in housing) may result in a different outcome of cognizance 
than would otherwise be appropriate.

Section C: Subpart F Audit Requirements (Circulars A-133 and A-50)

    This section discusses ideas for changes that would be made to the 
audit guidance that is contained in Circular A-133 on Audits of States, 
Local Governments, and Non-Profit Organizations and in Circular A-50 on 
Audit Follow-up. The following ideas for reform were discussed in the 
ANPG.
200.501 Audit Requirements
    OMB received many comments on the appropriateness of the proposed 
threshold for the single audit requirement at $750,000, some of which 
recommended the threshold be raised to a higher level, others 
ambivalent, and some recommended it be kept at its current level of 
$500,000.
    The COFAR considered the comments and the implications that raising 
the threshold to $750,000 would maintain Single Audit oversight over 
99.7% of the dollars that are currently subject to the requirement and 
87.1% of the entities that are currently subject to the requirement; 
eliminating the requirement for approximately 5,000 out of the 37,500 
entities that currently receive a Single Audit. The COFAR also noted 
that an increase of $250,000 is in line with the previous adjustment to 
the threshold.
    The COFAR considered that raising the threshold would allow Federal 
agencies to focus their audit resolution resources on the findings that 
put higher amounts of taxpayer dollars at risk, thus better mitigating 
overall risks of waste, fraud, and abuse across the government. 
Further, the COFAR notes that provisions throughout the guidance, 
including pre-award review of risks, standards for financial and 
program management, subrecipient monitoring and management, and 
remedies for noncompliance provide a strengthened level of oversight 
for non-Federal entities that would fall below the new threshold.
    The COFAR recommended that the threshold be kept at the proposed 
level of $750,000.
200.503 Relation to Other Audit Requirements
    Commenters recommended that language be added to this section to 
explicitly require Federal agencies or pass-through entities to review 
the Federal Audit Clearinghouse for existing audits submitted by the 
entities, and to rely on those to the extent possible prior to 
commencing an additional audit.
    The COFAR concurred with the suggestion and recommended the 
addition in order to reduce duplication by better leveraging existing 
audit resources prior to initiating new engagements.
200.507 Program-Specific Audits
    Commenters suggested that rather than requiring auditors to contact 
inspectors general for program specific audit guides, such guides 
should be listed in the annual compliance supplement. The COFAR 
recommended the addition to reduce administrative burden.
200.509 Auditor Selection
    Comments recommended that peer reviews be added to the factors 
considered in selecting an auditor. The COFAR recommended the addition 
to strengthen audit quality and ensure that audit resources are used 
most effectively.
200.510 Financial Statements
    Commenters suggested that the schedule of expenditures of Federal 
awards must include the total Federal awards expended as determined in 
accordance with section 200.502 Basis for Determining Federal Awards 
Expended, and also that for clusters of programs, the schedule of 
expenditures of Federal awards should include the cluster name and also 
include the Federal awarding agency name with the list of programs 
within the cluster. The COFAR recommended the addition to facilitate a 
more efficient and effective audit follow-up process.
200.511 Audit Findings Follow-Up
    Commenters recommended restoring existing language from OMB 
Circular A-133 that lists the valid reasons for considering an audit 
finding as not warranting further action. The COFAR recommended the 
addition.
200.512 Report Submission
    Commenters noted concern with the proposed language in this section 
that would make audit reports publicly available on the internet. 
Despite the fact that the non-Federal entity is already required to 
make the Single Audit report available for public inspection under the 
Single Audit Act, Indian Tribes were concerned that publishing them 
would expose sensitive confidential business information that would be 
harmful to the tribes. The COFAR considered this feedback including 
feedback from the Department of the Interior, which noted that even if 
a single audit report for an Indian Tribe were to be requested by a 
member of the public under the Freedom of Information Act, the 
confidential

[[Page 78607]]

business information would be redacted under exemption 4 under the Act.
    To fully address this problem, the COFAR would need to explore with 
the audit community whether auditing standards could allow for 
financial statements that do not include this sensitive information in 
the first place. Since this solution is beyond the reach of the COFAR 
at this time, the COFAR recommended adding an option to allow Indian 
Tribes to opt out of having the Federal Audit Clearinghouse publish 
their reports. If an Indian tribe were to exercise this option, it 
would be responsible for providing its audit report to any pass-through 
entities as appropriate.
    Commenters recommended additional language to make explicit that 
the Federal Audit Clearinghouse is the repository of record and 
authoritative source for single audit reports. Federal agencies, pass-
through entities, and others interested should therefore obtain it by 
accessing the clearinghouse rather than requesting it directly from the 
non-Federal entity. The COFAR agreed that the proposed addition would 
likely reduce administrative burden and recommended the addition.
    Commenters also recommended that the section include language to 
allow for exceptions to reporting deadlines particularly in cases of 
emergency. The COFAR considered this, but noted that such language 
would likely lead to an administratively burdensome process of frequent 
requests and denials of the extension period. In cases of true 
emergency, OMB and Federal agencies together often issue pre-emptive 
extensions of the deadline. The COFAR did not recommend further changes 
to the language.
    Further comments noted possible confusion over the deadline for 
report submission if it falls on a holiday. The COFAR also recommended 
changes to clarify that if the due date falls on a Saturday, Sunday, or 
Federal legal holiday, the reporting package is due the next business 
day.
200.513 Responsibilities
    Commenters recommended that the proposed language on quality 
control reviews be revised back to current OMB Circular A-133 for 
reviews that are risk based, which is more in line with agency capacity 
for reviews. The COFAR concurred with the recommendation. The COFAR 
further recommended further language to require a governmentwide audit 
quality project every six years similar to those done in the past to 
take a meaningful look at audit quality governmentwide and make 
substantive changes where needed.
    Commenters noted that the responsibility to coordinate a management 
decision for cross-cutting findings is one that Federal agencies 
struggle to accomplish currently. The COFAR considered this and agreed, 
but recommended the language remain as an articulation of the best 
policy. The Single Audit resolution pilot project currently under 
supervision of the COFAR is aimed at addressing some of the 
difficulties currently found in implementation.
    Commenters noted that the proposed requirement to submit management 
decisions to the Federal Audit Clearinghouse is one they concur with, 
but find that significant work would need to be done to coordinate the 
management decision process at a governmentwide level before this could 
feasibly be implemented. The COFAR concurred and struck the proposed 
language, as well as language that would allow other Federal agencies 
and pass-through entities to rely on cross-cutting management decisions 
from Cognizant or Oversight Agencies for Audit. The COFAR further notes 
that the Single Audit resolution pilot project currently under 
supervision of the COFAR will hopefully result in lessons learned and 
best practices that can facilitate the implementation of this policy in 
the future.
    Commenters responded positively to new provisions that would 
strengthen the audit-follow-up process including the appointment of 
Senior Accountable Officials, implementation of metrics, and 
encouragement of cooperative audit resolution techniques. These 
revisions would effectively strengthen the follow-up process and reduce 
risk of repeated findings of waste, fraud, and abuse.
    Some commenters posed questions about the role of the Senior 
Accountable Official for Audit and how it would align with 
responsibilities of the Office of Inspectors General. Similar questions 
were posed about the role of the designated key single audit 
coordinator. The COFAR considered these and recommended clarifications 
that the Senior Accountable Official is intended to be a policy 
official of the awarding agency who can be responsible for overseeing 
agency management's role in audit resolution. The COFAR also 
recommended the key single audit coordinator be renamed the key 
management single audit liaison, and notes that neither of these roles 
should in any way impact existing responsibilities of Inspectors 
General, but rather as the COFAR moves toward greater governmentwide 
coordination of the audit resolution process, these officials will be 
accountable for implementing that coordination and ensuring best 
results.
200.514 Scope of Audit
    Several commenters indicated sections where they recommended 
further references to Generally Accepted Government Auditing Standards 
(GAGAS). The COFAR considered these but noted that language in this 
section states upfront that Single Audits shall be conducted in 
accordance with GAGAS, and recommends that further repetition of this 
language throughout the document be avoided as unnecessary. The COFAR 
further recommended conforming changes to eliminate duplicative 
references throughout the guidance.
200.515 Audit Reporting
    Commenters recommended several minor technical edits throughout 
this section to align with auditing standards which the COFAR 
recommended. Commenters also recommended new language to note that 
nothing in this section should preclude combining of audit reporting 
required by this section with reporting required by section 200.512 
Report Submission. The COFAR considered that such an addition would be 
useful if future advances in technology allow more consolidated 
reporting in the future, and recommended the addition.
200.516 Audit Findings
    Some commenters requested that the proposed threshold for 
questioned costs of $25,000 be lowered, even below the existing 
threshold to a level of zero. Other commenters asked that it be raised 
higher than $25,000, and recommended that the level be set on a sliding 
scale as a percentage of total dollars awarded per program.
    The COFAR considered these recommendations, and noted that for 
purposes of accountability, types of compliance requirements are 
reviewed with levels of materiality in mind. The questioned cost 
threshold serves in most cases to dramatically lower the level at which 
a finding would otherwise be considered material and be reported. The 
threshold is a valuable tool that provides assurance that questioned 
costs above it will under no circumstances go unreported regardless of 
materiality. Based on these considerations, the COFAR recommended that 
the proposed threshold of $25,000 be accepted.

[[Page 78608]]

200.718 Major Program Determination
    The Government Accountability Office (GAO) commented that step 1 of 
the major program determination would be more easily understood if 
presented in a table. The COFAR concurred and recommended the new 
format for ease of comprehension among readers.
    Commenters noted the inconsistency of the single audit threshold at 
$750,000, the Type A/B program threshold at $500,000, and the threshold 
for an entity to have a Type A program at $1,000,000. Commenters 
suggested that that the level of the threshold for major programs 
needed to be raised consistent with the threshold for the Single Audit 
as a whole at $750,000 to ensure consistent coverage. The COFAR 
recommended the modification that all three thresholds be the same at 
$750.000 consistent with the single audit threshold.
    Commenters also recommended additional language to clarify the 
criteria under the step 2 determination of Type A programs which are 
low-risk. The COFAR recommended the addition.
200.520 Criteria for a Low-Risk Auditee
    Members of the audit community and states commented on the criteria 
for a low-risk auditee that includes whether the financial statements 
were prepared in accordance with GAAP. Members of the audit community 
note that GAAP is the preferred method, and states note that state law 
sometimes provides for other methods of preparation. The COFAR 
considered this and recommended revised language to allow for 
exceptions where state law requires otherwise.
200.521 Management Decision
    Upon review of the structure of the proposed guidance, the COFAR 
recommended that this section be moved to the end of the document.
    Commenters suggested that auditees should be required to initiate 
corrective action as rapidly as possible, and not wait until audit 
reports are submitted. The COFAR recommended the addition. Commenters 
also noted that while they supported the ultimate publication of 
management decisions through the Federal audit clearinghouse, this is 
not a change that they are prepared to implement immediately. As a 
result, the COFAR recommended that this be added to the current Single 
Audit Resolution Pilot currently underway within the COFAR, and that 
based on the results of the pilot, the COFAR work with Federal agencies 
to begin implementation of publication of management decisions in 2016.
Appendix XI Compliance Supplement
    While most commenters were in favor of the proposed reduction of 
the number of types of compliance requirements in the compliance 
supplement, many voiced concern about the process that would implement 
such changes. Comments questioned whether Federal agencies adding back 
provisions under special tests and provisions would result in increased 
administrative burden and requested that such fundamental changes be 
subject to a public notice and comment period. Since the Compliance 
Supplement is published as part of a separate process, no final changes 
are made at this time, but the COFAR recommended that any future 
changes to the compliance supplement be made based on available 
evidence on past findings and the potential impact of non-compliance 
for each type of compliance requirement. The COFAR further recommends 
that further public outreach be conducted prior to making any 
structural changes to the format of the compliance supplement to 
mitigate potential risks of an inadvertent increase in administrative 
burden.

List of Subjects in 2 CFR Parts 200, 215, 220, 225, and 230

    Accounting, Auditing, Colleges and universities, State and local 
governments, Grant programs, Grants administration, Hospitals, Indians, 
Nonprofit organizations, Reporting and recordkeeping requirements.

Norman Dong,
Deputy Controller.

    For the reasons stated in the preamble, under the Authority of the 
Chief Financial Officer Act of 1990 (31 U.S.C. 503), the Office of 
Management and Budget amends 2 CFR Chapters I and II as set forth 
below:

Chapter I--Office Of Management and Budget Governmentwide Guidance for 
Grants and Agreements

0
1. Remove the subchapter headings for Subchapters A through G from 
Chapter I.

Chapter II--Office of Management and Budget Guidance

0
2. The heading of chapter II is revised to read as set forth above.
0
3. Add part 200 to read as follows:

PART 200--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR FEDERAL AWARDS

Subpart A--Acronyms and Definitions

Acronyms

Sec.
200.0 Acronyms.
200.1 Definitions.
200.2 Acquisition cost.
200.3 Advance payment.
200.4 Allocation.
200.5 Audit finding.
200.6 Auditee.
200.7 Auditor.
200.8 Budget.
200.9 Central service cost allocation plan.
200.10 Catalog of Federal Domestic Assistance number.
200.11 CFDA program title.
200.12 Capital assets.
200.13 Capital expenditures.
200.14 Claim.
200.15 Class of Federal awards.
200.16 Closeout.
200.17 Cluster of programs.
200.18 Cognizant agency for audit.
200.19 Cognizant agency for indirect costs.
200.20 Computing devices.
200.21 Compliance supplement.
200.22 Contract.
200.23 Contractor.
200.24 Cooperative agreement.
200.25 Cooperative audit resolution.
200.26 Corrective action.
200.27 Cost allocation plan.
200.28 Cost objective.
200.29 Cost sharing or matching.
200.30 Cross-cutting audit finding.
200.31 Disallowed costs.
200.32 Data Universal Numbering System (DUNS) number.
200.33 Equipment.
200.34 Expenditures.
200.35 Federal agency.
200.36 Federal Audit Clearinghouse (FAC).
200.37 Federal awarding agency.
200.38 Federal award.
200.39 Federal award date.
200.40 Federal financial assistance.
200.41 Federal interest.
200.42 Federal program.
200.43 Federal share.
200.44 Final cost objective.
200.45 Fixed amount awards.
200.46 Foreign public entity.
200.47 Foreign organization.
200.48 General purpose equipment.
200.49 Generally Accepted Accounting Principles (GAAP).
200.50 Generally Accepted Government Auditing Standards (GAGAS).
200.51 Grant agreement.
200.52 Hospital.
200.53 Improper payment.
200.54 Indian tribe (or ``federally recognized Indian tribe'').
200.55 Institutions Of Higher Education (IHEs).
200.56 Indirect (facilities & administrative) costs.
200.57 Indirect cost rate proposal.
200.58 Information technology systems.

[[Page 78609]]

200.59 Intangible property.
200.60 Intermediate cost objective.
200.61 Internal controls.
200.62 Internal control over compliance requirements for Federal 
awards.
200.63 Loan.
200.64 Local government.
200.65 Major program.
200.66 Management decision.
200.67 Micro-purchase.
200.68 Modified Total Direct Cost (MTDC).
200.69 Non-Federal entity.
200.70 Nonprofit organization.
200.71 Obligations.
200.72 Office of Management and Budget (OMB).
200.73 Oversight agency for audit.
200.74 Pass-through entity.
200.75 Participant support costs.
200.76 Performance goal.
200.77 Period of performance.
200.78 Personal property.
200.79 Personally Identifiable Information (PII).
200.80 Program income.
200.81 Property.
200.82 Protected Personally Identifiable Information (Protected 
PII).
200.83 Project cost.
200.84 Questioned cost.
200.85 Real property.
200.86 Recipient.
200.87 Research and Development (R&D).
200.88 Simplified acquisition threshold.
200.89 Special purpose equipment.
200.90 State.
200.91 Student Financial Aid (SFA).
200.92 Subaward.
200.93 Subrecipient.
200.94 Supplies.
200.95 Termination.
200.96 Third-party in-kind contributions.
200.97 Unliquidated obligations.
200.98 Unobligated balance.
200.99 Voluntary committed cost sharing.
Subpart B--General Provisions
200.100 Purpose.
200.101 Applicability.
200.102 Exceptions.
200.103 Authorities.
200.104 Supersession.
200.105 Effect on other issuances.
200.106 Agency implementation.
200.107 OMB responsibilities.
200.108 Inquiries.
200.109 Review date.
200.110 Effective date.
200.111 English language.
200.112 Conflict of interest.
200.113 Mandatory disclosures.
Subpart C--Pre-Federal Award Requirements and Contents of Federal 
Awards
200.200 Purpose.
200.201 Use of grant agreements (including fixed amount awards), 
cooperative agreements, and contracts.
200.202 Requirement to provide public notice of Federal financial 
assistance arograms.
200.203 Notices of funding opportunities.
200.204 Federal awarding agency review of merit of proposals.
200.205 Federal awarding agency review of risk posed by applicants.
200.206 Standard application requirements.
200.207 Specific conditions.
200.208 Certifications and representations.
200.209 Pre-award costs.
200.210 Information contained in a Federal award.
200.211 Public access to Federal award information.
Subpart D--Post Federal Award Requirements

Standards for Financial and Program Management

200.300 Statutory and national policy requirements.
200.301 Performance measurement.
200.302 Financial management.
200.303 Internal controls.
200.304 Bonds.
200.305 Payment.
200.306 Cost sharing or matching.
200.307 Program income.
200.308 Revision of budget and program plans.
200.309 Period of performance.

Property Standards

200.310 Insurance coverage.
200.311 Real property.
200.312 Federally-owned and exempt property.
200.313 Equipment.
200.314 Supplies.
200.315 Intangible property.
200.316 Property trust relationship.

Procurement Standards

200.317 Procurements by states.
200.318 General procurement standards.
200.319 Competition.
200.320 Methods of procurement to be followed.
200.321 Contracting with small and minority businesses, women's 
business enterprises, and labor surplus area firms.
200.322 Procurement of recovered materials.
200.323 Contract cost and price.
200.324 Federal awarding agency or pass-through entity review.
200.325 Bonding requirements.
200.326 Contract provisions.

Performance and Financial Monitoring and Reporting

200.327 Financial reporting.
200.328 Monitoring and reporting program performance.
200.329 Reporting on real property.

Subrecipient Monitoring and Management

200.330 Subrecipient and contractor determinations.
200.331 Requirements for pass-through entities.
200.332 Fixed amount subawards.

Record Retention and Access

200.333 Retention Requirements for Records.
200.334 Requests for transfer of records.
200.335 Methods for collection, transmission and storage of 
information.
200.336 Access to records.
200.337 Restrictions on public access to records.

Remedies for Noncompliance

200.338 Remedies for noncompliance.
200.339 Termination.
200.340 Notification of termination requirement.
200.341 Opportunities to object, hearings and appeals.
200.342 Effects of suspension and termination.

Closeout

200.343 Closeout.

Post-Closeout Adjustments and Continuing Responsibilities

200.344 Post-closeout adjustments and continuing responsibilities.

Collection of Amounts Due

200.345 Collection of amounts due.
Subpart E--Cost Principles

General Provisions

200.400 Policy guide.
200.401 Application.

Basic Considerations

200.402 Composition of costs.
200.403 Factors affecting allowability of costs.
200.404 Reasonable costs.
200.405 Allocable costs.
200.406 Applicable credits.
200.407 Prior written approval (prior approval).
200.408 Limitation on allowance of costs.
200.409 Special considerations.
200.410 Collection of unallowable costs.
200.411 Adjustment of previously negotiated indirect (F&A) cost 
rates containing unallowable costs.

Direct and Indirect (F&A) Costs

200.412 Classification of costs.
200.413 Direct costs.
200.414 Indirect (F&A) costs.
200.415 Required certifications.

Special Considerations for States, Local Governments and Indian Tribes

200.416 Cost allocation plans and indirect cost proposals.
200.417 Interagency service.

Special Considerations for Institutions of Higher Education

200.418 Costs incurred by states and local governments.
200.419 Cost accounting standards and disclosure statement.

General Provisions for Selected Items of Cost

200.420 Considerations for selected items of cost.
200.421 Advertising and public relations.
200.422 Advisory councils.
200.423 Alcoholic beverages.
200.424 Alumni/ae activities.
200.425 Audit services.
200.426 Bad debts.
200.427 Bonding costs.
200.428 Collections of improper payments.
200.429 Commencement and convocation costs.
200.430 Compensation--personal services.
200.431 Compensation--fringe benefits.
200.432 Conferences.
200.433 Contingency provisions.
200.434 Contributions and donations.

[[Page 78610]]

200.435 Defense and prosecution of criminal and civil proceedings, 
claims, appeals and patent infringements.
200.436 Depreciation.
200.437 Employee health and welfare costs.
200.438 Entertainment costs.
200.439 Equipment and other capital expenditures.
200.440 Exchange rates.
200.441 Fines, penalties, damages and other settlements.
200.442 Fund raising and investment management costs.
200.443 Gains and losses on disposition of depreciable assets.
200.444 General costs of government.
200.445 Goods or services for personal use.
200.446 Idle facilities and idle capacity.
200.447 Insurance and indemnification.
200.448 Intellectual property.
200.449 Interest.
200.450 Lobbying.
200.451 Losses on other awards or contracts.
200.452 Maintenance and repair costs.
200.453 Materials and supplies costs, including costs of computing 
devices.
200.454 Memberships, subscriptions, and professional activity costs.
200.455 Organization costs.
200.456 Participant support costs.
200.457 Plant and security costs.
200.458 Pre-award costs.
200.459 Professional service costs.
200.460 Proposal costs.
200.461 Publication and printing costs.
200.462 Rearrangement and reconversion costs.
200.463 Recruiting costs.
200.464 Relocation costs of employees.
200.465 Rental costs of real property and equipment.
200.466 Scholarships and student aid costs.
200.467 Selling and marketing costs.
200.468 Specialized service facilities.
200.469 Student activity costs.
200.470 Taxes (including Value Added Tax).
200.471 Termination costs.
200.472 Training and education costs.
200.473 Transportation costs.
200.474 Travel costs.
200.475 Trustees.
Subpart F--Audit Requirements

General

200.500 Purpose.

Audits

200.501 Audit requirements.
200.502 Basis for determining Federal awards expended.
200.503 Relation to other audit requirements.
200.504 Frequency of audits.
200.505 Sanctions.
200.506 Audit costs.
200.507 Program-specific audits.

Auditees

200.508 Auditee responsibilities.
200.509 Auditor selection.
200.510 Financial statements.
200.511 Audit findings follow-up.
200.512 Report submission.

Federal Agencies

200.513 Responsibilities.

Auditors

200.514 Scope of audit.
200.515 Audit reporting.
200.516 Audit findings.
200.517 Audit documentation.
200.518 Major program determination.
200.519 Criteria for Federal program risk.
200.520 Criteria for a low-risk auditee.

Management Decisions

200.521 Management decision.

Appendix I to Part 200--Full Text of Notice of Funding Opportunity

Appendix II to Part 200--Contract Provisions for Non-Federal Entity 
Contracts Under Federal Awards

Appendix III to Part 200--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Institutions of Higher Education 
(IHEs)

Appendix IV to Part 200--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Nonprofit Organizations

Appendix V to Part 200--State/Local Government and Indian Tribe-Wide 
Central Service Cost Allocation Plans

Appendix VI to Part 200--Public Assistance Cost Allocation Plans

Appendix VII to Part 220--States and Local Government and Indian Tribe 
Indirect Cost Proposals

Appendix VIII to Part 200--Nonprofit Organizations Exempted From 
Subpart E--Cost Principles of Part 200

Appendix IX to Part 200--Hospital Cost Principles

Appendix X to Part 200--Data Collection Form (Form SF-SAC)

Appendix XI to Part 200--Compliance Supplement

    Authority: 31 U.S.C. 503

Subpart A--Acronyms and Definitions

Acronyms


Sec.  200.0  Acronyms.

ACRONYM TERM

CAS Cost Accounting Standards
CFDA Catalog of Federal Domestic Assistance
CFR Code of Federal Regulations
CMIA Cash Management Improvement Act
COG Councils Of Governments
COSO Committee of Sponsoring Organizations of the Treadway 
Commission
D&B Dun and Bradstreet
DUNS Data Universal Numbering System
EPA Environmental Protection Agency
ERISA Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1301-1461)
EUI Energy Usage Index
F&A Facilities and Administration
FAC Federal Audit Clearinghouse
FAIN Federal Award Identification Number
FAPIIS Federal Awardee Performance and Integrity Information System
FAR Federal Acquisition Regulation
FFATA Federal Funding Accountability and Transparency Act of 2006 or 
Transparency Act--Public Law 109-282, as amended by section 6202(a) 
of Public Law 110-252 (31 U.S.C. 6101)
FICA Federal Insurance Contributions Act
FOIA Freedom of Information Act
FR Federal Register
FTE Full-time equivalent
GAAP Generally Accepted Accounting Principles
GAGAS Generally Accepted Government Accounting Standards
GAO General Accounting Office
GOCO Government owned, contractor operated
GSA General Services Administration
IBS Institutional Base Salary
IHE Institutions of Higher Education
IRC Internal Revenue Code
ISDEAA Indian Self-Determination and Education and Assistance Act
MTC Modified Total Cost
MTDC Modified Total Direct Cost
OMB Office of Management and Budget
PII Personally Identifiable Information
PRHP Post-retirement Health Plans
PTE Pass-through Entity
REUI Relative Energy Usage Index
SAM System for Award Management
SFA Student Financial Aid
SNAP Supplemental Nutrition Assistance Program
SPOC Single Point of Contact
TANF Temporary Assistance for Needy Families
TFM Treasury Financial Manual
U.S.C. United States Code
VAT Value Added Tax


Sec.  200.1  Definitions.

    These are the definitions for terms used in this Part. Different 
definitions may be found in Federal statutes or regulations that apply 
more specifically to particular programs or activities. These 
definitions could be supplemented by additional instructional 
information provided in governmentwide standard information 
collections.


Sec.  200.2  Acquisition cost.

    Acquisition cost means the cost of the asset including the cost to 
ready the asset for its intended use. Acquisition cost for equipment, 
for example, means the net invoice price of the equipment, including 
the cost of any modifications, attachments, accessories, or auxiliary 
apparatus necessary to make it usable for the purpose for which it is 
acquired. Acquisition costs for software includes those development 
costs capitalized in accordance with generally accepted accounting 
principles (GAAP). Ancillary charges, such as taxes, duty, protective 
in transit insurance, freight, and installation may be included in or 
excluded from the acquisition cost in

[[Page 78611]]

accordance with the non-Federal entity's regular accounting practices.


Sec. 200.3  Advance payment.

    Advance payment means a payment that a Federal awarding agency or 
pass-through entity makes by any appropriate payment mechanism, 
including a predetermined payment schedule, before the non-Federal 
entity disburses the funds for program purposes.


Sec.  200.4  Allocation.

    Allocation means the process of assigning a cost, or a group of 
costs, to one or more cost objective(s), in reasonable proportion to 
the benefit provided or other equitable relationship. The process may 
entail assigning a cost(s) directly to a final cost objective or 
through one or more intermediate cost objectives.


Sec.  200.5  Audit finding.

    Audit finding means deficiencies which the auditor is required by 
Sec.  200.516 Audit findings, paragraph (a) to report in the schedule 
of findings and questioned costs.


Sec.  200.6  Auditee.

    Auditee means any non-Federal entity that expends Federal awards 
which must be audited under Subpart F--Audit Requirements of this Part.


Sec.  200.7  Auditor.

    Auditor means an auditor who is a public accountant or a Federal, 
state or local government audit organization, which meets the general 
standards specified in generally accepted government auditing standards 
(GAGAS). The term auditor does not include internal auditors of 
nonprofit organizations.


Sec.  200.8  Budget.

    Budget means the financial plan for the project or program that the 
Federal awarding agency or pass-through entity approves during the 
Federal award process or in subsequent amendments to the Federal award. 
It may include the Federal and non-Federal share or only the Federal 
share, as determined by the Federal awarding agency or pass-through 
entity.


Sec.  200.9  Central service cost allocation plan.

    Central service cost allocation plan means the documentation 
identifying, accumulating, and allocating or developing billing rates 
based on the allowable costs of services provided by a state, local 
government, or Indian tribe on a centralized basis to its departments 
and agencies. The costs of these services may be allocated or billed to 
users.


Sec.  200.10  Catalog of Federal Domestic Assistance (CFDA) number.

    CFDA number means the number assigned to a Federal program in the 
CFDA.


Sec.  200.11  CFDA program title.

    CFDA program title means the title of the program under which the 
Federal award was funded in the CFDA.


Sec.  200.12  Capital assets.

    Capital assets means tangible or intangible assets used in 
operations having a useful life of more than one year which are 
capitalized in accordance with GAAP. Capital assets include:
    (a) Land, buildings (facilities), equipment, and intellectual 
property (including software) whether acquired by purchase, 
construction, manufacture, lease-purchase, exchange, or through capital 
leases; and
    (b) Additions, improvements, modifications, replacements, 
rearrangements, reinstallations, renovations or alterations to capital 
assets that materially increase their value or useful life (not 
ordinary repairs and maintenance).


Sec.  200.13  Capital expenditures.

    Capital expenditures means expenditures to acquire capital assets 
or expenditures to make additions, improvements, modifications, 
replacements, rearrangements, reinstallations, renovations, or 
alterations to capital assets that materially increase their value or 
useful life.


Sec.  200.14  Claim.

    Claim means, depending on the context, either:
    (a) A written demand or written assertion by one of the parties to 
a Federal award seeking as a matter of right:
    (1) The payment of money in a sum certain;
    (2) The adjustment or interpretation of the terms and conditions of 
the Federal award; or
    (3) Other relief arising under or relating to a Federal award.
    (b) A request for payment that is not in dispute when submitted.


Sec.  200.15  Class of Federal awards.

    Class of Federal awards means a group of Federal awards either 
awarded under a specific program or group of programs or to a specific 
type of non-Federal entity or group of non-Federal entities to which 
specific provisions or exceptions may apply.


Sec.  200.16  Closeout.

    Closeout means the process by which the Federal awarding agency or 
pass-through entity determines that all applicable administrative 
actions and all required work of the Federal award have been completed 
and takes actions as described in Sec.  200.343 Closeout.


Sec.  200.17  Cluster of programs.

    Cluster of programs means a grouping of closely related programs 
that share common compliance requirements. The types of clusters of 
programs are research and development (R&D), student financial aid 
(SFA), and other clusters. ``Other clusters'' are as defined by OMB in 
the compliance supplement or as designated by a state for Federal 
awards the state provides to its subrecipients that meet the definition 
of a cluster of programs. When designating an ``other cluster,'' a 
state must identify the Federal awards included in the cluster and 
advise the subrecipients of compliance requirements applicable to the 
cluster, consistent with Sec.  200.331 Requirements for pass-through 
entities, paragraph (a). A cluster of programs must be considered as 
one program for determining major programs, as described in Sec.  
200.518 Major program determination, and, with the exception of R&D as 
described in Sec.  200.501 Audit requirements, paragraph (c), whether a 
program-specific audit may be elected.


Sec.  200.18  Cognizant agency for audit.

    Cognizant agency for audit means the Federal agency designated to 
carry out the responsibilities described in Sec.  200.513 
Responsibilities, paragraph (a). The cognizant agency for audit is not 
necessarily the same as the cognizant agency for indirect costs. A list 
of cognizant agencies for audit may be found at the FAC Web site.


Sec.  200.19  Cognizant agency for indirect costs.

    Cognizant agency for indirect costs means the Federal agency 
responsible for reviewing, negotiating, and approving cost allocation 
plans or indirect cost proposals developed under this Part on behalf of 
all Federal agencies. The cognizant agency for indirect cost is not 
necessarily the same as the cognizant agency for audit. For assignments 
of cognizant agencies see the following:
    (a) For IHEs: Appendix III to Part 200--Indirect (F&A) Costs 
Identification and Assignment, and Rate Determination for Institutions 
of Higher Education (IHEs), paragraph C.10.
    (b) For nonprofit organizations: Appendix IV to Part 200--Indirect 
(F&A) Costs Identification and

[[Page 78612]]

Assignment, and Rate Determination for Nonprofit Organizations, 
paragraph C.1.
    (c) For state and local governments: Appendix V to Part 200--State/
Local Government and Indian Tribe-Wide Central Service Cost Allocation 
Plans, paragraph F.1.


Sec.  200.20  Computing devices.

    Computing devices means machines used to acquire, store, analyze, 
process, and publish data and other information electronically, 
including accessories (or ``peripherals'') for printing, transmitting 
and receiving, or storing electronic information. See also Sec. Sec.  
200.94 Supplies and 200.58 Information technology systems.


Sec.  200.21  Compliance supplement.

    Compliance supplement means Appendix XI to Part 200--Compliance 
Supplement (previously known as the Circular A-133 Compliance 
Supplement).


Sec.  200.22  Contract.

    Contract means a legal instrument by which a non-Federal entity 
purchases property or services needed to carry out the project or 
program under a Federal award. The term as used in this Part does not 
include a legal instrument, even if the non-Federal entity considers it 
a contract, when the substance of the transaction meets the definition 
of a Federal award or subaward (see Sec.  200.92 Subaward).


Sec.  200.23  Contractor.

    Contractor means an entity that receives a contract as defined in 
Sec.  200.22 Contract.


Sec.  200.24  Cooperative agreement.

    Cooperative agreement means a legal instrument of financial 
assistance between a Federal awarding agency or pass-through entity and 
a non-Federal entity that, consistent with 31 U.S.C. 6302-6305:
    (a) Is used to enter into a relationship the principal purpose of 
which is to transfer anything of value from the Federal awarding agency 
or pass-through entity to the non-Federal entity to carry out a public 
purpose authorized by a law of the United States (see 31 U.S.C. 
6101(3)); and not to acquire property or services for the Federal 
government or pass-through entity's direct benefit or use;
    (b) Is distinguished from a grant in that it provides for 
substantial involvement between the Federal awarding agency or pass-
through entity and the non-Federal entity in carrying out the activity 
contemplated by the Federal award.
    (c) The term does not include:
    (1) A cooperative research and development agreement as defined in 
15 U.S.C. 3710a; or
    (2) An agreement that provides only:
    (i) Direct United States Government cash assistance to an 
individual;
    (ii) A subsidy;
    (iii) A loan;
    (iv) A loan guarantee; or
    (v) Insurance.


Sec.  200.25  Cooperative audit resolution.

    Cooperative audit resolution means the use of audit follow-up 
techniques which promote prompt corrective action by improving 
communication, fostering collaboration, promoting trust, and developing 
an understanding between the Federal agency and the non-Federal entity. 
This approach is based upon:
    (a) A strong commitment by Federal agency and non-Federal entity 
leadership to program integrity;
    (b) Federal agencies strengthening partnerships and working 
cooperatively with non-Federal entities and their auditors; and non-
Federal entities and their auditors working cooperatively with Federal 
agencies;
    (c) A focus on current conditions and corrective action going 
forward;
    (d) Federal agencies offering appropriate relief for past 
noncompliance when audits show prompt corrective action has occurred; 
and
    (e) Federal agency leadership sending a clear message that 
continued failure to correct conditions identified by audits which are 
likely to cause improper payments, fraud, waste, or abuse is 
unacceptable and will result in sanctions.


Sec.  200.26  Corrective action.

    Corrective action means action taken by the auditee that:
    (a) Corrects identified deficiencies;
    (b) Produces recommended improvements; or
    (c) Demonstrates that audit findings are either invalid or do not 
warrant auditee action.


Sec.  200.27  Cost allocation plan.

    Cost allocation plan means central service cost allocation plan or 
public assistance cost allocation plan.


Sec.  200.28  Cost objective.

    Cost objective means a program, function, activity, award, 
organizational subdivision, contract, or work unit for which cost data 
are desired and for which provision is made to accumulate and measure 
the cost of processes, products, jobs, capital projects, etc. A cost 
objective may be a major function of the non-Federal entity, a 
particular service or project, a Federal award, or an indirect 
(Facilities & Administrative (F&A)) cost activity, as described in 
Subpart E--Cost Principles of this Part. See also Sec. Sec.  200.44 
Final cost objective and 200.60 Intermediate cost objective.


Sec.  200.29  Cost sharing or matching.

    Cost sharing or matching means the portion of project costs not 
paid by Federal funds (unless otherwise authorized by Federal statute). 
See also Sec.  200.306 Cost sharing or matching.


Sec.  200.30  Cross-cutting audit finding.

    Cross-cutting audit finding means an audit finding where the same 
underlying condition or issue affects Federal awards of more than one 
Federal awarding agency or pass-through entity.


Sec.  200.31  Disallowed costs.

    Disallowed costs means those charges to a Federal award that the 
Federal awarding agency or pass-through entity determines to be 
unallowable, in accordance with the applicable Federal statutes, 
regulations, or the terms and conditions of the Federal award.


Sec.  200.32  Data Universal Numbering System (DUNS) number.

    DUNS number means the nine-digit number established and assigned by 
Dun and Bradstreet, Inc. (D&B) to uniquely identify entities. A non-
Federal entity is required to have a DUNS number in order to apply for, 
receive, and report on a Federal award. A DUNS number may be obtained 
from D&B by telephone (currently 866-705-5711) or the Internet 
(currently at http://fedgov.dnb.com/webform).


Sec.  200.33  Equipment.

    Equipment means tangible personal property (including information 
technology systems) having a useful life of more than one year and a 
per-unit acquisition cost which equals or exceeds the lesser of the 
capitalization level established by the non-Federal entity for 
financial statement purposes, or $5,000. See also Sec. Sec.  200.12 
Capital assets, 200.20 Computing devices, 200.48 General purpose 
equipment, 200.58 Information technology systems, 200.89 Special 
purpose equipment, and 200.94 Supplies.


Sec.  200.34  Expenditures.

    Expenditures means charges made by a non-Federal entity to a 
project or program for which a Federal award was received.
    (a) The charges may be reported on a cash or accrual basis, as long 
as the methodology is disclosed and is consistently applied.

[[Page 78613]]

    (b) For reports prepared on a cash basis, expenditures are the sum 
of:
    (1) Cash disbursements for direct charges for property and 
services;
    (2) The amount of indirect expense charged;
    (3) The value of third-party in-kind contributions applied; and
    (4) The amount of cash advance payments and payments made to 
subrecipients.
    (c) For reports prepared on an accrual basis, expenditures are the 
sum of:
    (1) Cash disbursements for direct charges for property and 
services;
    (2) The amount of indirect expense incurred;
    (3) The value of third-party in-kind contributions applied; and
    (4) The net increase or decrease in the amounts owed by the non-
Federal entity for:
    (i) Goods and other property received;
    (ii) Services performed by employees, contractors, subrecipients, 
and other payees; and
    (iii) Programs for which no current services or performance are 
required such as annuities, insurance claims, or other benefit 
payments.


Sec.  200.35  Federal agency.

    Federal agency means an ``agency'' as defined at 5 U.S.C. 551(1) 
and further clarified by 5 U.S.C. 552(f).


Sec.  200.36  Federal Audit Clearinghouse (FAC).

    FAC means the clearinghouse designated by OMB as the repository of 
record where non-Federal entities are required to transmit the 
reporting packages required by Subpart F--Audit Requirements of this 
Part. The mailing address of the FAC is Federal Audit Clearinghouse, 
Bureau of the Census, 1201 E. 10th Street, Jeffersonville, IN 47132 and 
the web address is: http://harvester.census.gov/sac/. Any future 
updates to the location of the FAC may be found at the OMB Web site.


Sec.  200.37  Federal awarding agency.

    Federal awarding agency means the Federal agency that provides a 
Federal award directly to a non-Federal entity.


Sec.  200.38  Federal award.

    Federal award has the meaning, depending on the context, in either 
paragraph (a) or (b) of this section: (a)(1) The Federal financial 
assistance that a non-Federal entity receives directly from a Federal 
awarding agency or indirectly from a pass-through entity, as described 
in Sec.  200.101 Applicability; or
    (2) The cost-reimbursement contract under the Federal Acquisition 
Regulations that a non-Federal entity receives directly from a Federal 
awarding agency or indirectly from a pass-through entity, as described 
in Sec.  200.101 Applicability.
    (b) The instrument setting forth the terms and conditions. The 
instrument is the grant agreement, cooperative agreement, other 
agreement for assistance covered in paragraph (b) of Sec.  200.40 
Federal financial assistance, or the cost-reimbursement contract 
awarded under the Federal Acquisition Regulations.
    (c) Federal award does not include other contracts that a Federal 
agency uses to buy goods or services from a contractor or a contract to 
operate Federal government owned, contractor operated facilities 
(GOCOs).
    (d) See also definitions of Federal financial assistance, grant 
agreement, and cooperative agreement.


Sec.  200.39  Federal award date.

    Federal award date means the date when the Federal award is signed 
by the authorized official of the Federal awarding agency.


Sec.  200.40  Federal financial assistance.

    (a) For grants and cooperative agreements, Federal financial 
assistance means assistance that non-Federal entities receive or 
administer in the form of:
    (1) Grants;
    (2) Cooperative agreements;
    (3) Non-cash contributions or donations of property (including 
donated surplus property);
    (4) Direct appropriations;
    (5) Food commodities; and
    (6) Other financial assistance (except assistance listed in 
paragraph (b) of this section).
    (b) For Subpart F--Audit Requirements of this part, Federal 
financial assistance also includes assistance that non-Federal entities 
receive or administer in the form of:
    (1) Loans;
    (2) Loan Guarantees;
    (3) Interest subsidies; and
    (4) Insurance.
    (c) Federal financial assistance does not include amounts received 
as reimbursement for services rendered to individuals as described in 
Sec.  200.502 Basis for determining Federal awards expended, paragraph 
(h) and (i) of this Part.


Sec.  200.41  Federal interest.

    Federal interest means, for purposes of Sec.  200.329 Reporting on 
real property or when used in connection with the acquisition or 
improvement of real property, equipment, or supplies under a Federal 
award, the dollar amount that is the product of the:
    (a) Federal share of total project costs; and
    (b) Current fair market value of the property, improvements, or 
both, to the extent the costs of acquiring or improving the property 
were included as project costs.


Sec.  200.42  Federal program.

    Federal program means:
    (a) All Federal awards which are assigned a single number in the 
CFDA.
    (b) When no CFDA number is assigned, all Federal awards to non-
Federal entities from the same agency made for the same purpose should 
be combined and considered one program.
    (c) Notwithstanding paragraphs (a) and (b) of this definition, a 
cluster of programs. The types of clusters of programs are:
    (1) Research and development (R&D);
    (2) Student financial aid (SFA); and
    (3) ``Other clusters,'' as described in the definition of Cluster 
of Programs.


Sec.  200.43  Federal share.

    Federal share means the portion of the total project costs that are 
paid by Federal funds.


Sec.  200.44  Final cost objective.

    Final cost objective means a cost objective which has allocated to 
it both direct and indirect costs and, in the non-Federal entity's 
accumulation system, is one of the final accumulation points, such as a 
particular award, internal project, or other direct activity of a non-
Federal entity. See also Sec. Sec.  200.28 Cost objective and 200.60 
Intermediate cost objective.


Sec.  200.45  Fixed amount awards.

    Fixed amount awards means a type of grant agreement under which the 
Federal awarding agency or pass-through entity provides a specific 
level of support without regard to actual costs incurred under the 
Federal award. This type of Federal award reduces some of the 
administrative burden and record-keeping requirements for both the non-
Federal entity and Federal awarding agency or pass-through entity. 
Accountability is based primarily on performance and results. See 
Sec. Sec.  200.201 Use of grant agreements (including fixed amount 
awards), cooperative agreements, and contracts, paragraph (b) and 
200.332 Fixed amount subawards.


Sec.  200.46  Foreign public entity.

    Foreign public entity means:
    (a) A foreign government or foreign governmental entity;
    (b) A public international organization, which is an organization 
entitled to enjoy privileges, exemptions, and immunities as an 
international

[[Page 78614]]

organization under the International Organizations Immunities Act (22 
U.S.C. 288-288f);
    (c) An entity owned (in whole or in part) or controlled by a 
foreign government; or
    (d) Any other entity consisting wholly or partially of one or more 
foreign governments or foreign governmental entities.


Sec.  200.47  Foreign organization.

    Foreign organization means an entity that is:
    (a) A public or private organization located in a country other 
than the United States and its territories that are subject to the laws 
of the country in which it is located, irrespective of the citizenship 
of project staff or place of performance;
    (b) A private nongovernmental organization located in a country 
other than the United States that solicits and receives cash 
contributions from the general public;
    (c) A charitable organization located in a country other than the 
United States that is nonprofit and tax exempt under the laws of its 
country of domicile and operation, and is not a university, college, 
accredited degree-granting institution of education, private 
foundation, hospital, organization engaged exclusively in research or 
scientific activities, church, synagogue, mosque or other similar 
entities organized primarily for religious purposes; or
    (d) An organization located in a country other than the United 
States not recognized as a Foreign Public Entity.


Sec.  200.48  General purpose equipment.

    General purpose equipment means equipment which is not limited to 
research, medical, scientific or other technical activities. Examples 
include office equipment and furnishings, modular offices, telephone 
networks, information technology equipment and systems, air 
conditioning equipment, reproduction and printing equipment, and motor 
vehicles. See also Equipment and Special Purpose Equipment.


Sec.  200.49  Generally Accepted Accounting Principles (GAAP).

    GAAP has the meaning specified in accounting standards issued by 
the Government Accounting Standards Board (GASB) and the Financial 
Accounting Standards Board (FASB).


Sec.  200.50  Generally Accepted Government Auditing Standards (GAGAS).

    GAGAS means generally accepted government auditing standards issued 
by the Comptroller General of the United States, which are applicable 
to financial audits.


Sec.  200.51  Grant agreement.

    Grant agreement means a legal instrument of financial assistance 
between a Federal awarding agency or pass-through entity and a non-
Federal entity that, consistent with 31 U.S.C. 6302, 6304:
    (a) Is used to enter into a relationship the principal purpose of 
which is to transfer anything of value from the Federal awarding agency 
or pass-through entity to the non-Federal entity to carry out a public 
purpose authorized by a law of the United States (see 31 U.S.C. 
6101(3)); and not to acquire property or services for the Federal 
awarding agency or pass-through entity's direct benefit or use;
    (b) Is distinguished from a cooperative agreement in that it does 
not provide for substantial involvement between the Federal awarding 
agency or pass-through entity and the non-Federal entity in carrying 
out the activity contemplated by the Federal award.
    (c) Does not include an agreement that provides only:
    (1) Direct United States Government cash assistance to an 
individual;
    (2) A subsidy;
    (3) A loan;
    (4) A loan guarantee; or
    (5) Insurance.


Sec.  200.52  Hospital.

    Hospital means a facility licensed as a hospital under the law of 
any state or a facility operated as a hospital by the United States, a 
state, or a subdivision of a state.


Sec.  200.53  Improper payment.

    (a) Improper payment means any payment that should not have been 
made or that was made in an incorrect amount (including overpayments 
and underpayments) under statutory, contractual, administrative, or 
other legally applicable requirements; and
    (b) Improper payment includes any payment to an ineligible party, 
any payment for an ineligible good or service, any duplicate payment, 
any payment for a good or service not received (except for such 
payments where authorized by law), any payment that does not account 
for credit for applicable discounts, and any payment where insufficient 
or lack of documentation prevents a reviewer from discerning whether a 
payment was proper.


Sec.  200.54  Indian tribe (or ``federally recognized Indian tribe'').

    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. Chapter 33), 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians (25 U.S.C. 450b(e)). See annually published Bureau of Indian 
Affairs list of Indian Entities Recognized and Eligible to Receive 
Services.


Sec.  200.55  Institutions of Higher Education (IHEs).

    IHE is defined at 20 U.S.C. 1001.


Sec.  200.56  Indirect (facilities & administrative (F&A)) costs.

    Indirect (F&A) costs means those costs incurred for a common or 
joint purpose benefitting more than one cost objective, and not readily 
assignable to the cost objectives specifically benefitted, without 
effort disproportionate to the results achieved. To facilitate 
equitable distribution of indirect expenses to the cost objectives 
served, it may be necessary to establish a number of pools of indirect 
(F&A) costs. Indirect (F&A) cost pools should be distributed to 
benefitted cost objectives on bases that will produce an equitable 
result in consideration of relative benefits derived.


Sec.  200.57  Indirect cost rate proposal.

    Indirect cost rate proposal means the documentation prepared by a 
non-Federal entity to substantiate its request for the establishment of 
an indirect cost rate as described in Appendix III to Part 200--
Indirect (F&A) Costs Identification and Assignment, and Rate 
Determination for Institutions of Higher Education (IHEs) through 
Appendix VII to Part 200--States and Local Government and Indian Tribe 
Indirect Cost Proposals of this Part.


Sec.  200.58  Information technology systems.

    Information technology systems means computing devices, ancillary 
equipment, software, firmware, and similar procedures, services 
(including support services), and related resources. See also 
Sec. Sec.  200.20 Computing devices and 200.33 Equipment.


Sec.  200.59  Intangible property.

    Intangible property means property having no physical existence, 
such as trademarks, copyrights, patents and patent applications and 
property, such as loans, notes and other debt instruments, lease 
agreements, stock and other instruments of property ownership (whether 
the property is tangible or intangible).

[[Page 78615]]

Sec.  200.60  Intermediate cost objective.

    Intermediate cost objective means a cost objective that is used to 
accumulate indirect costs or service center costs that are subsequently 
allocated to one or more indirect cost pools or final cost objectives. 
See also Sec.  200.28 Cost objective and Sec.  200.44 Final cost 
objective.


Sec.  200.61  Internal controls.

    Internal controls means a process, implemented by a non-Federal 
entity, designed to provide reasonable assurance regarding the 
achievement of objectives in the following categories:
    (a) Effectiveness and efficiency of operations;
    (b) Reliability of reporting for internal and external use; and
    (c) Compliance with applicable laws and regulations.


Sec.  200.62  Internal control over compliance requirements for Federal 
awards.

    Internal control over compliance requirements for Federal awards 
means a process implemented by a non-Federal entity designed to provide 
reasonable assurance regarding the achievement of the following 
objectives for Federal awards:
    (a) Transactions are properly recorded and accounted for, in order 
to:
    (1) Permit the preparation of reliable financial statements and 
Federal reports;
    (2) Maintain accountability over assets; and
    (3) Demonstrate compliance with Federal statutes, regulations, and 
the terms and conditions of the Federal award;
    (b) Transactions are executed in compliance with:
    (1) Federal statutes, regulations, and the terms and conditions of 
the Federal award that could have a direct and material effect on a 
Federal program; and
    (2) Any other Federal statutes and regulations that are identified 
in the Compliance Supplement; and
    (c) Funds, property, and other assets are safeguarded against loss 
from unauthorized use or disposition.


Sec.  200.63  Loan.

    Loan means a Federal loan or loan guarantee received or 
administered by a non-Federal entity, except as used in the definition 
of Sec.  200.80 Program income.
    (a) The term ``direct loan'' means a disbursement of funds by the 
Federal government to a non-Federal borrower under a contract that 
requires the repayment of such funds with or without interest. The term 
includes the purchase of, or participation in, a loan made by another 
lender and financing arrangements that defer payment for more than 90 
days, including the sale of a Federal government asset on credit terms. 
The term does not include the acquisition of a federally guaranteed 
loan in satisfaction of default claims or the price support loans of 
the Commodity Credit Corporation.
    (b) The term ``direct loan obligation'' means a binding agreement 
by a Federal awarding agency to make a direct loan when specified 
conditions are fulfilled by the borrower.
    (c) The term ``loan guarantee'' means any Federal government 
guarantee, insurance, or other pledge with respect to the payment of 
all or a part of the principal or interest on any debt obligation of a 
non-Federal borrower to a non-Federal lender, but does not include the 
insurance of deposits, shares, or other withdrawable accounts in 
financial institutions.
    (d) The term ``loan guarantee commitment'' means a binding 
agreement by a Federal awarding agency to make a loan guarantee when 
specified conditions are fulfilled by the borrower, the lender, or any 
other party to the guarantee agreement.


Sec.  200.64  Local government.

    Local government means any unit of government within a state, 
including a:
    (a) County;
    (b) Borough;
    (c) Municipality;
    (d) City;
    (e) Town;
    (f) Township;
    (g) Parish;
    (h) Local public authority, including any public housing agency 
under the United States Housing Act of 1937;
    (i) Special district;
    (j) School district;
    (k) Intrastate district;
    (l) Council of governments, whether or not incorporated as a 
nonprofit corporation under state law; and
    (m) Any other agency or instrumentality of a multi-, regional, or 
intra-state or local government.


Sec.  200.65  Major program.

    Major program means a Federal program determined by the auditor to 
be a major program in accordance with Sec.  200.518 Major program 
determination or a program identified as a major program by a Federal 
awarding agency or pass-through entity in accordance with Sec.  200.503 
Relation to other audit requirements, paragraph (e).


Sec.  200.66  Management decision.

    Management decision means the evaluation by the Federal awarding 
agency or pass-through entity of the audit findings and corrective 
action plan and the issuance of a written decision to the auditee as to 
what corrective action is necessary.


Sec.  200.67  Micro-purchase.

    Micro-purchase means a purchase of supplies or services using 
simplified acquisition procedures, the aggregate amount of which does 
not exceed the micro-purchase threshold. Micro-purchase procedures 
comprise a subset of a non-Federal entity's small purchase procedures. 
The non-Federal entity uses such procedures in order to expedite the 
completion of its lowest-dollar small purchase transactions and 
minimize the associated administrative burden and cost. The micro-
purchase threshold is set by the Federal Acquisition Regulation at 48 
CFR Subpart 2.1 (Definitions). It is $3,000 except as otherwise 
discussed in Subpart 2.1 of that regulation, but this threshold is 
periodically adjusted for inflation.


Sec.  200.68  Modified Total Direct Cost (MTDC).

    MTDC means all direct salaries and wages, applicable fringe 
benefits, materials and supplies, services, travel, and subawards and 
subcontracts up to the first $25,000 of each subaward or subcontract 
(regardless of the period of performance of the subawards and 
subcontracts under the award). MTDC excludes equipment, capital 
expenditures, charges for patient care, rental costs, tuition 
remission, scholarships and fellowships, participant support costs and 
the portion of each subaward and subcontract in excess of $25,000. 
Other items may only be excluded when necessary to avoid a serious 
inequity in the distribution of indirect costs, and with the approval 
of the cognizant agency for indirect costs.


Sec.  200.69  Non-Federal entity.

    Non-Federal entity means a state, local government, Indian tribe, 
institution of higher education (IHE), or nonprofit organization that 
carries out a Federal award as a recipient or subrecipient.


Sec.  200.70  Nonprofit organization.

    Nonprofit organization means any corporation, trust, association, 
cooperative, or other organization, not including IHEs, that:
    (a) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (b) Is not organized primarily for profit; and

[[Page 78616]]

    (c) Uses net proceeds to maintain, improve, or expand the 
operations of the organization.


Sec.  200.71  Obligations.

    When used in connection with a non-Federal entity's utilization of 
funds under a Federal award, obligations means orders placed for 
property and services, contracts and subawards made, and similar 
transactions during a given period that require payment by the non-
Federal entity during the same or a future period.


Sec.  200.72  Office of Management and Budget (OMB).

    OMB means the Executive Office of the President, Office of 
Management and Budget.


Sec.  200.73  Oversight agency for audit.

    Oversight agency for audit means the Federal awarding agency that 
provides the predominant amount of funding directly to a non-Federal 
entity not assigned a cognizant agency for audit. When there is no 
direct funding, the Federal awarding agency which is the predominant 
source of pass-through funding must assume the oversight 
responsibilities. The duties of the oversight agency for audit and the 
process for any reassignments are described in Sec.  200.513 
Responsibilities, paragraph (b).


Sec.  200.74  Pass-through entity.

    Pass-through entity means a non-Federal entity that provides a 
subaward to a subrecipient to carry out part of a Federal program.


Sec.  200.75  Participant support costs.

    Participant support costs means direct costs for items such as 
stipends or subsistence allowances, travel allowances, and registration 
fees paid to or on behalf of participants or trainees (but not 
employees) in connection with conferences, or training projects.


Sec.  200.76  Performance goal.

    Performance goal means a target level of performance expressed as a 
tangible, measurable objective, against which actual achievement can be 
compared, including a goal expressed as a quantitative standard, value, 
or rate. In some instances (e.g., discretionary research awards), this 
may be limited to the requirement to submit technical performance 
reports (to be evaluated in accordance with agency policy).


Sec.  200.77  Period of performance.

    Period of performance means the time during which the non-Federal 
entity may incur new obligations to carry out the work authorized under 
the Federal award. The Federal awarding agency or pass-through entity 
must include start and end dates of the period of performance in the 
Federal award (see Sec. Sec.  200.210 Information contained in a 
Federal award paragraph (a)(5) and 200.331 Requirements for pass-
through entities, paragraph (a)(1)(iv)).


Sec.  200.78  Personal property.

    Personal property means property other than real property. It may 
be tangible, having physical existence, or intangible.


Sec.  200.79  Personally Identifiable Information (PII).

    PII means information that can be used to distinguish or trace an 
individual's identity, either alone or when combined with other 
personal or identifying information that is linked or linkable to a 
specific individual. Some information that is considered to be PII is 
available in public sources such as telephone books, public Web sites, 
and university listings. This type of information is considered to be 
Public PII and includes, for example, first and last name, address, 
work telephone number, email address, home telephone number, and 
general educational credentials. The definition of PII is not anchored 
to any single category of information or technology. Rather, it 
requires a case-by-case assessment of the specific risk that an 
individual can be identified. Non-PII can become PII whenever 
additional information is made publicly available, in any medium and 
from any source, that, when combined with other available information, 
could be used to identify an individual.


Sec.  200.80  Program income.

    Program income means gross income earned by the non-Federal entity 
that is directly generated by a supported activity or earned as a 
result of the Federal award during the period of performance. (See 
Sec.  200.77 Period of performance.) Program income includes but is not 
limited to income from fees for services performed, the use or rental 
or real or personal property acquired under Federal awards, the sale of 
commodities or items fabricated under a Federal award, license fees and 
royalties on patents and copyrights, and principal and interest on 
loans made with Federal award funds. Interest earned on advances of 
Federal funds is not program income. Except as otherwise provided in 
Federal statutes, regulations, or the terms and conditions of the 
Federal award, program income does not include rebates, credits, 
discounts, and interest earned on any of them.
    See also Sec.  200.407 Prior written approval (prior approval). See 
also 35 U.S.C. 200-212 ``Disposition of Rights in Educational Awards'' 
applies to inventions made under Federal awards.


Sec.  200.81  Property.

    Property means real property or personal property.


Sec.  200.82  Protected Personally Identifiable Information (Protected 
PII).

    Protected PII means an individual's first name or first initial and 
last name in combination with any one or more of types of information, 
including, but not limited to, social security number, passport number, 
credit card numbers, clearances, bank numbers, biometrics, date and 
place of birth, mother's maiden name, criminal, medical and financial 
records, educational transcripts. This does not include PII that is 
required by law to be disclosed. (See also Sec.  200.79 Personally 
Identifiable Information (PII)).


Sec.  200.83  Project cost.

    Project cost means total allowable costs incurred under a Federal 
award and all required cost sharing and voluntary committed cost 
sharing, including third-party contributions.


Sec.  200.84  Questioned cost.

    Questioned cost means a cost that is questioned by the auditor 
because of an audit finding:
    (a) Which resulted from a violation or possible violation of a 
statute, regulation, or the terms and conditions of a Federal award, 
including for funds used to match Federal funds;
    (b) Where the costs, at the time of the audit, are not supported by 
adequate documentation; or
    (c) Where the costs incurred appear unreasonable and do not reflect 
the actions a prudent person would take in the circumstances.


Sec.  200.85  Real property.

    Real property means land, including land improvements, structures 
and appurtenances thereto, but excludes moveable machinery and 
equipment.


Sec.  200.86  Recipient.

    Recipient means a non-Federal entity that receives a Federal award 
directly from a Federal awarding agency to carry out an activity under 
a Federal program. The term recipient does not include subrecipients. 
See also Sec.  200.69 Non-Federal entity.

[[Page 78617]]

Sec.  200.87  Research and Development (R&D).

    R&D means all research activities, both basic and applied, and all 
development activities that are performed by non-Federal entities. The 
term research also includes activities involving the training of 
individuals in research techniques where such activities utilize the 
same facilities as other research and development activities and where 
such activities are not included in the instruction function.
    ``Research'' is defined as a systematic study directed toward 
fuller scientific knowledge or understanding of the subject studied. 
``Development'' is the systematic use of knowledge and understanding 
gained from research directed toward the production of useful 
materials, devices, systems, or methods, including design and 
development of prototypes and processes.


Sec.  200.88  Simplified acquisition threshold.

    Simplified acquisition threshold means the dollar amount below 
which a non-Federal entity may purchase property or services using 
small purchase methods. Non-Federal entities adopt small purchase 
procedures in order to expedite the purchase of items costing less than 
the simplified acquisition threshold. The simplified acquisition 
threshold is set by the Federal Acquisition Regulation at 48 CFR 
Subpart 2.1 (Definitions) and in accordance with 41 U.S.C. 1908. As of 
the publication of this Part, the simplified acquisition threshold is 
$150,000, but this threshold is periodically adjusted for inflation. 
(Also see definition of Sec.  200.67 Micro-purchase.)


Sec.  200.89  Special purpose equipment.

    Special purpose equipment means equipment which is used only for 
research, medical, scientific, or other technical activities. Examples 
of special purpose equipment include microscopes, x-ray machines, 
surgical instruments, and spectrometers. See also Sec. Sec.  200.33 
Equipment and 200.48 General purpose equipment.


Sec.  200.90  State.

    State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, 
American Samoa, the Commonwealth of the Northern Mariana Islands, and 
any agency or instrumentality thereof exclusive of local governments.


Sec.  200.91  Student Financial Aid (SFA).

    SFA means Federal awards under those programs of general student 
assistance, such as those authorized by Title IV of the Higher 
Education Act of 1965, as amended, (20 U.S.C. 1070-1099d), which are 
administered by the U.S. Department of Education, and similar programs 
provided by other Federal agencies. It does not include Federal awards 
under programs that provide fellowships or similar Federal awards to 
students on a competitive basis, or for specified studies or research.


Sec.  200.92  Subaward.

    Subaward means an award provided by a pass-through entity to a 
subrecipient for the subrecipient to carry out part of a Federal award 
received by the pass-through entity. It does not include payments to a 
contractor or payments to an individual that is a beneficiary of a 
Federal program. A subaward may be provided through any form of legal 
agreement, including an agreement that the pass-through entity 
considers a contract.


Sec.  200.93  Subrecipient.

    Subrecipient means a non-Federal entity that receives a subaward 
from a pass-through entity to carry out part of a Federal program; but 
does not include an individual that is a beneficiary of such program. A 
subrecipient may also be a recipient of other Federal awards directly 
from a Federal awarding agency.


Sec.  200.94  Supplies.

    Supplies means all tangible personal property other than those 
described in Sec.  200.33 Equipment. A computing device is a supply if 
the acquisition cost is less than the lesser of the capitalization 
level established by the non-Federal entity for financial statement 
purposes or $5,000, regardless of the length of its useful life. See 
also Sec. Sec.  200.20 Computing devices and 200.33 Equipment.


Sec.  200.95  Termination.

    Termination means the ending of a Federal award, in whole or in 
part at any time prior to the planned end of period of performance.


Sec.  200.96  Third-party in-kind contributions.

    Third-party in-kind contributions means the value of non-cash 
contributions (i.e., property or services) that--
    (a) Benefit a federally assisted project or program; and
    (b) Are contributed by non-Federal third parties, without charge, 
to a non-Federal entity under a Federal award.


Sec.  200.97  Unliquidated obligations.

    Unliquidated obligations means, for financial reports prepared on a 
cash basis, obligations incurred by the non-Federal entity that have 
not been paid (liquidated). For reports prepared on an accrual 
expenditure basis, these are obligations incurred by the non-Federal 
entity for which an expenditure has not been recorded.


Sec.  200.98  Unobligated balance.

    Unobligated balance means the amount of funds under a Federal award 
that the non-Federal entity has not obligated. The amount is computed 
by subtracting the cumulative amount of the non-Federal entity's 
unliquidated obligations and expenditures of funds under the Federal 
award from the cumulative amount of the funds that the Federal awarding 
agency or pass-through entity authorized the non-Federal entity to 
obligate.


Sec.  200.99  Voluntary committed cost sharing.

    Voluntary committed cost sharing means cost sharing specifically 
pledged on a voluntary basis in the proposal's budget or the Federal 
award on the part of the non-Federal entity and that becomes a binding 
requirement of Federal award.

Subpart B--General Provisions


Sec.  200.100  Purpose.

    (a)(1) This Part establishes uniform administrative requirements, 
cost principles, and audit requirements for Federal awards to non-
Federal entities, as described in Sec.  200.101 Applicability. Federal 
awarding agencies must not impose additional or inconsistent 
requirements, except as provided in Sec. Sec.  200.102 Exceptions and 
200.210 Information contained in a Federal award, or unless 
specifically required by Federal statute, regulation, or Executive 
Order.
    (2) This Part provides the basis for a systematic and periodic 
collection and uniform submission by Federal agencies of information on 
all Federal financial assistance programs to the Office of Management 
and Budget (OMB). It also establishes Federal policies related to the 
delivery of this information to the public, including through the use 
of electronic media. It prescribes the manner in which General Services 
Administration (GSA), OMB, and Federal agencies that administer Federal 
financial assistance programs are to carry out their statutory 
responsibilities under the Federal Program Information Act (31 U.S.C. 
6101-6106).
    (b) Administrative requirements. Subparts B through D of this Part 
set

[[Page 78618]]

forth the uniform administrative requirements for grant and cooperative 
agreements, including the requirements for Federal awarding agency 
management of Federal grant programs before the Federal award has been 
made, and the requirements Federal awarding agencies may impose on non-
Federal entities in the Federal award.
    (c) Cost Principles. Subpart E--Cost Principles of this Part 
establishes principles for determining the allowable costs incurred by 
non-Federal entities under Federal awards. The principles are for the 
purpose of cost determination and are not intended to identify the 
circumstances or dictate the extent of Federal government participation 
in the financing of a particular program or project. The principles are 
designed to provide that Federal awards bear their fair share of cost 
recognized under these principles except where restricted or prohibited 
by statute.
    (d) Single Audit Requirements and Audit Follow-up. Subpart F--Audit 
Requirements of this Part is issued pursuant to the Single Audit Act 
Amendments of 1996, (31 U.S.C. 7501-7507). It sets forth standards for 
obtaining consistency and uniformity among Federal agencies for the 
audit of non-Federal entities expending Federal awards. These 
provisions also provide the policies and procedures for Federal 
awarding agencies and pass-through entities when using the results of 
these audits.
    (e) For OMB guidance to Federal awarding agencies on Challenges and 
Prizes, please see M-10-11 Guidance on the Use of Challenges and Prizes 
to Promote Open Government, issued March 8, 2010, or its successor.


Sec.  200.101  Applicability.

    (a) General applicability to Federal agencies. The requirements 
established in this Part apply to Federal agencies that make Federal 
awards to non-Federal entities. These requirements are applicable to 
all costs related to Federal awards.
    (b)(1) Applicability to different types of Federal awards. The 
following table describes what portions of this Part apply to which 
types of Federal awards. The terms and conditions of Federal awards 
(including this Part) flow down to subawards to subrecipients unless a 
particular section of this Part or the terms and conditions of the 
Federal award specifically indicate otherwise. This means that non-
Federal entities must comply with requirements in this Part regardless 
of whether the non-Federal entity is a recipient or subrecipient of a 
Federal award. Pass-through entities must comply with the requirements 
described in Subpart D--Post Federal Award Requirements of this Part, 
Sec. Sec.  200.330 Subrecipient and contractor determinations through 
200.332 Fixed amount Subawards, but not any requirements in this Part 
directed towards Federal awarding agencies unless the requirements of 
this Part or the terms and conditions of the Federal award indicate 
otherwise.

 
----------------------------------------------------------------------------------------------------------------
                                         Are applicable to the following
                                       types of Federal Awards (except as    Are NOT applicable to the following
 The following portions of the Part:   noted in paragraphs (d) and (e) of         types of Federal Awards:
                                                 this section):
----------------------------------------------------------------------------------------------------------------
                     This table must be read along with the other provisions of this section
----------------------------------------------------------------------------------------------------------------
Authority: 31 U.S.C. 503
    Subpart A--Acronyms and           --All.
     Definitions.
Subpart B--General Provisions,        --All.
 except for Sec.  Sec.   Sec.
 200.111 English language, Sec.
 200.112 Conflict of interest, Sec.
  200.113.
  Mandatory disclosures
Sec.   200.111 English language,      --Grant agreements and cooperative    --Agreements for: loans, loan
 Sec.   200.112 Conflict of            agreements.                           guarantees, interest subsidies, and
 interest, and Sec.   200.113.                                               insurance.
  Mandatory disclosures                                                     --Cost-reimbursement contracts
                                                                             awarded under the Federal
                                                                             Acquisition Regulations and cost-
                                                                             reimbursement subcontracts under
                                                                             these contracts.
Subparts C-D, except for              --Grant agreements and cooperative    --Agreements for: loans, loan
 Subrecipient Monitoring and           agreements.                           guarantees, interest subsidies, and
 Management.                                                                 insurance.
                                                                            --Cost-reimbursement contracts
                                                                             awarded under the Federal
                                                                             Acquisition Regulations and cost-
                                                                             reimbursement subcontracts under
                                                                             these contracts.
Subpart D--Post Federal Award         --All.
 Requirements, Subrecipient
 Monitoring and Management.
Subpart E--Cost Principles..........  --Grant agreements and cooperative    --Grant agreements and cooperative
                                       agreements, except those providing    agreements providing food
                                       food commodities.                     commodities.
                                      --Cost-reimbursement contracts        --Fixed amount awards.
                                       awarded under the Federal            --Agreements for: loans, loan
                                       Acquisition Regulations and cost-     guarantees, interest subsidies,
                                       reimbursement subcontracts under      insurance.
                                       these contracts in accordance with   --Federal awards to hospitals (see
                                       the FAR.                              Appendix IX to Part 200--Hospital
                                                                             Cost Principles).
Subpart F--Audit Requirements.......  --All...............................
----------------------------------------------------------------------------------------------------------------


[[Page 78619]]

    (2) Federal award of cost-reimbursement contract under the FAR to a 
non-Federal entity. When a non-Federal entity is awarded a cost-
reimbursement contract, only Subpart D--Post Federal Award Requirements 
of this Part, Sec. Sec.  200.330 Subrecipient and contractor 
determinations through 200.332 Fixed amount Subawards (in addition to 
any FAR related requirements for subaward monitoring), Subpart E--Cost 
Principles of this Part and Subpart F--Audit Requirements of this Part 
are incorporated by reference into the contract. However, when the Cost 
Accounting Standards (CAS) are applicable to the contract, they take 
precedence over the requirements of this Part except for Subpart F--
Audit Requirements of this Part when they are in conflict. In addition, 
costs that are made unallowable under 10 U.S.C. 2324(e) and 41 U.S.C. 
4304(a) as described in the FAR subpart 31.2 and subpart 31.603 are 
always unallowable. For requirements other than those covered in 
Subpart D--Post Federal Award Requirements of this Part, Sec. Sec.  
200.330 Subrecipient and contractor determinations through 200.332 
Fixed amount Subawards, Subpart E--Cost Principles of this Part and 
Subpart F--Audit Requirements of this Part, the terms of the contract 
and the FAR apply.
    (3) With the exception of Subpart F--Audit Requirements of this 
Part, which is required by the Single Audit Act, in any circumstances 
where the provisions of Federal statutes or regulations differ from the 
provisions of this Part, the provision of the Federal statutes or 
regulations govern. This includes, for agreements with Indian tribes, 
the provisions of the Indian Self-Determination and Education and 
Assistance Act (ISDEAA), as amended, 25 U.S.C 450-458ddd-2.
    (c) Federal agencies may apply subparts A through E of this Part to 
for-profit entities, foreign public entities, or foreign organizations, 
except where the Federal awarding agency determines that the 
application these subparts would be inconsistent with the international 
obligations of the United States or the statute or regulations of a 
foreign government.
    (d) Except for Sec.  200.202 Requirement to provide public notice 
of Federal financial assistance programs and Sec. Sec.  200.330 
Subrecipient and contractor determinations through 200.332 Fixed amount 
Subawards of Subpart D--Post Federal Award Requirements of this Part, 
the requirements in Subpart C--Pre-Federal Award Requirements and 
Contents of Federal Awards, Subpart D--Post Federal Award Requirements 
of this Part, and Subpart E--Cost Principles of this Part do not apply 
to the following programs:
    (1) The block grant awards authorized by the Omnibus Budget 
Reconciliation Act of 1981 (including Community Services; Preventive 
Health and Health Services; Alcohol, Drug Abuse, and Mental Health 
Services; Maternal and Child Health Services; Social Services; Low-
Income Home Energy Assistance; States' Program of Community Development 
Block Grant Awards for Small Cities; and Elementary and Secondary 
Education other than programs administered by the Secretary of 
Education under title V, subtitle D, chapter 2, section 583--the 
Secretary's discretionary award program) and both the Alcohol and Drug 
Abuse Treatment and Rehabilitation Block Grant Award (42 U.S.C. 300x-21 
to 300x-35 and 42 U.S.C. 300x-51 to 300x64) and the Mental Health 
Service for the Homeless Block Grant Award (42 U.S.C. 300x to 300x-9) 
under the Public Health Services Act.
    (2) Federal awards to local education agencies under 20 U.S.C. 
7702-7703b, (portions of the Impact Aid program);
    (3) Payments under the Department of Veterans Affairs' State Home 
Per Diem Program (38 U.S.C. 1741); and
    (4) Federal awards authorized under the Child Care and Development 
Block Grant Act of 1990, as amended:
    (i) Child Care and Development Block Grant (42 U.S.C. 9858)
    (ii) Child Care Mandatory and Matching Funds of the Child Care and 
Development Fund (42 U.S.C. 9858)
    (e) Except for Sec.  200.202 Requirement to provide public notice 
of Federal financial assistance programs the guidance in Subpart C--
Pre-Federal Award Requirements and Contents of Federal Awards of this 
Part does not apply to the following programs:
    (1) Entitlement Federal awards to carry out the following programs 
of the Social Security Act:
    (i) Temporary Assistance to Needy Families (title IV-A of the 
Social Security Act, 42 U.S.C. 601-619);
    (ii) Child Support Enforcement and Establishment of Paternity 
(title IV-D of the Social Security Act, 42 U.S.C. 651-669b);
    (iii) Foster Care and Adoption Assistance (title IV-E of the Act, 
42 U.S.C. 670-679c);
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act, as amended); and
    (v) Medical Assistance (Medicaid) (title XIX of the Act, 42 U.S.C. 
1396-1396w-5) not including the State Medicaid Fraud Control program 
authorized by section 1903(a)(6)(B) of the Social Security Act (42 
U.S.C. 1396b(a)(6)(B)).
    (2) A Federal award for an experimental, pilot, or demonstration 
project that is also supported by a Federal award listed in paragraph 
(e)(1) of this section;
    (3) Federal awards under subsection 412(e) of the Immigration and 
Nationality Act and subsection 501(a) of the Refugee Education 
Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 1809), for cash 
assistance, medical assistance, and supplemental security income 
benefits to refugees and entrants and the administrative costs of 
providing the assistance and benefits (8 U.S.C. 1522(e));
    (4) Entitlement awards under the following programs of The National 
School Lunch Act:
    (i) National School Lunch Program (section 4 of the Act, 42 U.S.C. 
1753),
    (ii) Commodity Assistance (section 6 of the Act, 42 U.S.C. 1755),
    (iii) Special Meal Assistance (section 11 of the Act, 42 U.S.C. 
1759a),
    (iv) Summer Food Service Program for Children (section 13 of the 
Act, 42 U.S.C. 1761), and
    (v) Child and Adult Care Food Program (section 17 of the Act, 42 
U.S.C. 1766).
    (5) Entitlement awards under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk Program (section 3 of the Act, 42 U.S.C. 1772),
    (ii) School Breakfast Program (section 4 of the Act, 42 U.S.C. 
1773), and
    (iii) State Administrative Expenses (section 7 of the Act, 42 
U.S.C. section 1776).

[[Page 78620]]

    (6) Entitlement awards for State Administrative Expenses under The 
Food and Nutrition Act of 2008 (section 16 of the Act, 7 U.S.C. 2025).
    (7) Non-discretionary Federal awards under the following non-
entitlement programs:
    (i) Special Supplemental Nutrition Program for Women, Infants and 
Children (section 17 of the Child Nutrition Act of 1966) 42 U.S.C. 
section 1786;
    (ii) The Emergency Food Assistance Programs (Emergency Food 
Assistance Act of 1983) 7 U.S.C. section 7501 note; and
    (iii) Commodity Supplemental Food Program (section 5 of the 
Agriculture and Consumer Protection Act of 1973) 7 U.S.C. section 612c 
note.


Sec.  200.102  Exceptions.

    (a) With the exception of Subpart F--Audit Requirements of this 
Part, OMB may allow exceptions for classes of Federal awards or non-
Federal entities subject to the requirements of this Part when 
exceptions are not prohibited by statute. However, in the interest of 
maximum uniformity, exceptions from the requirements of this Part will 
be permitted only in unusual circumstances. Exceptions for classes of 
Federal awards or non-Federal entities will be published on the OMB Web 
site at www.whitehouse.gov/omb.
    (b) Exceptions on a case-by-case basis for individual non-Federal 
entities may be authorized by the Federal awarding agency or cognizant 
agency for indirect costs except where otherwise required by law or 
where OMB or other approval is expressly required by this Part. No 
case-by-case exceptions may be granted to the provisions of Subpart F--
Audit Requirements of this Part.
    (c) The Federal awarding agency may apply more restrictive 
requirements to a class of Federal awards or non-Federal entities when 
approved by OMB, required by Federal statutes or regulations except for 
the requirements in Subpart F--Audit Requirements of this Part. A 
Federal awarding agency may apply less restrictive requirements when 
making fixed amount awards as defined in Subpart A--Acronyms and 
Definitions of this Part, except for those requirements imposed by 
statute or in Subpart F--Audit Requirements of this Part.
    (d) On a case-by-case basis, OMB will approve new strategies for 
Federal awards when proposed by the Federal awarding agency in 
accordance with OMB guidance (such as M-13-17) to develop additional 
evidence relevant to addressing important policy challenges or to 
promote cost-effectiveness in and across Federal programs. Proposals 
may draw on the innovative program designs discussed in M-13-17 to 
expand or improve the use of effective practices in delivering Federal 
financial assistance while also encouraging innovation in service 
delivery. Proposals submitted to OMB in accordance with M-13-17 may 
include requests to waive requirements other than those in Subpart F--
Audit Requirements of this Part.


Sec.  200.103  Authorities.

    This Part is issued under the following authorities.
    (a) Subpart B--General Provisions of this Part through Subpart D--
Post Federal Award Requirements of this Part are authorized under 31 
U.S.C. 503 (the Chief Financial Officers Act, Functions of the Deputy 
Director for Management), 31 U.S.C. 1111 (Improving Economy and 
Efficiency of the United States Government), 41 U.S.C. 1101-1131 (the 
Office of Federal Procurement Policy Act), Reorganization Plan No. 2 of 
1970, and Executive Order 11541 (``Prescribing the Duties of the Office 
of Management and Budget and the Domestic Policy Council in the 
Executive Office of the President''), the Single Audit Act Amendments 
of 1996, (31 U.S.C. 7501-7507), as well as The Federal Program 
Information Act (Public Law 95-220 and Public Law 98-169, as amended, 
codified at 31 U.S.C. 6101-6106).
    (b) Subpart E--Cost Principles of this Part is authorized under the 
Budget and Accounting Act of 1921, as amended; the Budget and 
Accounting Procedures Act of 1950, as amended (31 U.S.C. 1101-1125); 
the Chief Financial Officers Act of 1990 (31 U.S.C. 503-504); 
Reorganization Plan No. 2 of 1970; and Executive Order No. 11541, 
``Prescribing the Duties of the Office of Management and Budget and the 
Domestic Policy Council in the Executive Office of the President.''
    (c) Subpart F--Audit Requirements of this Part is authorized under 
the Single Audit Act Amendments of 1996, (31 U.S.C. 7501-7507).


Sec.  200.104  Supersession.

    As described in Sec.  200.110 Effective/applicability date, this 
Part supersedes the following OMB guidance documents and regulations 
under Title 2 of the Code of Federal Regulations:
    (a) A-21, ``Cost Principles for Educational Institutions'' (2 CFR 
Part 220);
    (b) A-87, ``Cost Principles for State, Local and Indian Tribal 
Governments'' (2 CFR Part 225) and also Federal Register notice 51 FR 
552 (January 6, 1986);
    (c) A-89, ``Federal Domestic Assistance Program Information'';
    (d) A-102, ``Grant Awards and Cooperative Agreements with State and 
Local Governments'';
    (e) A-110, ``Uniform Administrative Requirements for Awards and 
Other Agreements with Institutions of Higher Education, Hospitals, and 
Other Nonprofit Organizations'' (codified at 2 CFR 215);
    (f) A-122, ``Cost Principles for Non-Profit Organizations'' (2 CFR 
Part 230);
    (g) A-133, ``Audits of States, Local Governments and Non-Profit 
Organizations,''; and
    (h) Those sections of A-50 related to audits performed under 
Subpart F--Audit Requirements of this Part.


Sec.  200.105  Effect on other issuances.

    For Federal awards subject to this Part, all administrative 
requirements, program manuals, handbooks and other non-regulatory 
materials that are inconsistent with the requirements of this Part must 
be superseded upon implementation of this Part by the Federal agency, 
except to the extent they are required by statute or authorized in 
accordance with the provisions in Sec.  200.102 Exceptions.


Sec.  200.106  Agency implementation.

    The specific requirements and responsibilities of Federal agencies 
and non-Federal entities are set forth in this Part. Federal agencies 
making Federal awards to non-Federal entities must implement the 
language in the Subpart C--Pre-Federal Award Requirements and Contents 
of Federal Awards of this Part through Subpart F--Audit Requirements of 
this Part in codified regulations unless different provisions are 
required by Federal statute or are approved by OMB.


Sec.  200.107  OMB responsibilities.

    OMB will review Federal agency regulations and implementation of 
this Part, and will provide interpretations of policy requirements and 
assistance to ensure effective and efficient implementation. Any 
exceptions will be subject to approval by OMB. Exceptions will only be 
made in particular cases where adequate justification is presented.


Sec.  200.108  Inquiries.

    Inquiries concerning this Part may be directed to the Office of 
Federal Financial Management Office of Management and Budget, in 
Washington, DC. Non-Federal entities' inquiries should be addressed to 
the Federal awarding agency, cognizant agency for indirect costs, 
cognizant or

[[Page 78621]]

oversight agency for audit, or pass-through entity as appropriate.


Sec.  200.109  Review date.

    OMB will review this Part at least every five years after December 
26, 2013.


Sec.  200.110  Effective/applicability date.

    (a) The standards set forth in this Part which affect 
administration of Federal awards issued by Federal agencies become 
effective once implemented by Federal agencies or when any future 
amendment to this Part becomes final. Federal agencies must implement 
the policies and procedures applicable to Federal awards by 
promulgating a regulation to be effective by December 26, 2014 unless 
different provisions are required by statute or approved by OMB.
    (b) The standards set forth in Subpart F--Audit Requirements of 
this Part and any other standards which apply directly to Federal 
agencies will be effective December 26, 2013 and will apply to audits 
of fiscal years beginning on or after December 26, 2014.


Sec.  200.111  English language.

    (a) All Federal financial assistance announcements and Federal 
award information must be in the English language. Applications must be 
submitted in the English language and must be in the terms of U.S. 
dollars. If the Federal awarding agency receives applications in 
another currency, the Federal awarding agency will evaluate the 
application by converting the foreign currency to United States 
currency using the date specified for receipt of the application.
    (b) Non-Federal entities may translate the Federal award and other 
documents into another language. In the event of inconsistency between 
any terms and conditions of the Federal award and any translation into 
another language, the English language meaning will control. Where a 
significant portion of the non-Federal entity's employees who are 
working on the Federal award are not fluent in English, the non-Federal 
entity must provide the Federal award in English and the language(s) 
with which employees are more familiar.


Sec.  200.112  Conflict of interest.

    The Federal awarding agency must establish conflict of interest 
policies for Federal awards. The non-Federal entity must disclose in 
writing any potential conflict of interest to the Federal awarding 
agency or pass-through entity in accordance with applicable Federal 
awarding agency policy.


Sec.  200.113  Mandatory disclosures.

    The non-Federal entity or applicant for a Federal award must 
disclose, in a timely manner, in writing to the Federal awarding agency 
or pass-through entity all violations of Federal criminal law involving 
fraud, bribery, or gratuity violations potentially affecting the 
Federal award. Failure to make required disclosures can result in any 
of the remedies described in Sec.  200.338 Remedies for noncompliance, 
including suspension or debarment. (See also 2 CFR Part 180 and 31 
U.S.C. 3321).

Subpart C--Pre-Federal Award Requirements and Contents of Federal 
Awards


Sec.  200.200  Purpose.

    (a) Sections 200.201 Use of grant agreements (including fixed 
amount awards), cooperative agreements, and contracts through 200.208 
Certifications and representations. Prescribe instructions and other 
pre-award matters to be used in the announcement and application 
process.
    (b) Use of Sec. Sec.  200.203 Notices of funding opportunities, 
200.204 Federal awarding agency review of merit of proposals, 200.205 
Federal awarding agency review of risk posed by applicants, and 200.207 
Specific conditions, is required only for competitive Federal awards, 
but may also be used by the Federal awarding agency for non-competitive 
awards where appropriate or where required by Federal statute.


Sec.  200.201  Use of grant agreements (including fixed amount awards), 
cooperative agreements, and contracts.

    (a) The Federal awarding agency or pass-through entity must decide 
on the appropriate instrument for the Federal award (i.e., grant 
agreement, cooperative agreement, or contract) in accordance with the 
Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301-08).
    (b) Fixed Amount Awards. In addition to the options described in 
paragraph (a) of this section, Federal awarding agencies, or pass-
through entities as permitted in Sec.  200.332 Fixed amount subawards, 
may use fixed amount awards (see Sec.  200.45 Fixed amount awards) to 
which the following conditions apply:
    (1) Payments are based on meeting specific requirements of the 
Federal award. Accountability is based on performance and results. The 
Federal award amount is negotiated using the cost principles (or other 
pricing information) as a guide. Except in the case of termination 
before completion of the Federal award, there is no governmental review 
of the actual costs incurred by the non-Federal entity in performance 
of the award. The Federal awarding agency or pass-through entity may 
use fixed amount awards if the project scope is specific and if 
adequate cost, historical, or unit pricing data is available to 
establish a fixed amount award with assurance that the non-Federal 
entity will realize no increment above actual cost. Some of the ways in 
which the Federal award may be paid include, but are not limited to:
    (i) In several partial payments, the amount of each agreed upon in 
advance, and the ``milestone'' or event triggering the payment also 
agreed upon in advance, and set forth in the Federal award;
    (ii) On a unit price basis, for a defined unit or units, at a 
defined price or prices, agreed to in advance of performance of the 
Federal award and set forth in the Federal award; or,
    (iii) In one payment at Federal award completion.
    (2) A fixed amount award cannot be used in programs which require 
mandatory cost sharing or match.
    (3) The non-Federal entity must certify in writing to the Federal 
awarding agency or pass-through entity at the end of the Federal award 
that the project or activity was completed or the level of effort was 
expended. If the required level of activity or effort was not carried 
out, the amount of the Federal award must be adjusted.
    (4) Periodic reports may be established for each Federal award.
    (5) Changes in principal investigator, project leader, project 
partner, or scope of effort must receive the prior written approval of 
the Federal awarding agency or pass-through entity.


Sec.  200.202  Requirement to provide public notice of Federal 
financial assistance programs.

    (a) The Federal awarding agency must notify the public of Federal 
programs in the Catalog of Federal Domestic Assistance (CFDA), 
maintained by the General Services Administration (GSA).
    (1) The CFDA, or any OMB-designated replacement, is the single, 
authoritative, governmentwide comprehensive source of Federal financial 
assistance program information produced by the executive branch of the 
Federal government.
    (2) The information that the Federal awarding agency must submit to 
GSA for approval by OMB is listed in paragraph (b) of this section. GSA 
must prescribe the format for the submission.
    (3) The Federal awarding agency may not award Federal financial 
assistance without assigning it to a program that

[[Page 78622]]

has been included in the CFDA as required in this section unless there 
are exigent circumstances requiring otherwise, such as timing 
requirements imposed by statute.
    (b) For each program that awards discretionary Federal awards, non-
discretionary Federal awards, loans, insurance, or any other type of 
Federal financial assistance, the Federal awarding agency must submit 
the following information to GSA:
    (1) Program Description, Purpose, Goals and Measurement. A brief 
summary of the statutory or regulatory requirements of the program and 
its intended outcome. Where appropriate, the Program Description, 
Purpose, Goals, and Measurement should align with the strategic goals 
and objectives within the Federal awarding agency's performance plan 
and should support the Federal awarding agency's performance 
measurement, management, and reporting as required by Part 6 of OMB 
Circular A-11;
    (2) Identification of whether the program makes Federal awards on a 
discretionary basis or the Federal awards are prescribed by Federal 
statute, such as in the case of formula grants.
    (3) Projected total amount of funds available for the program. 
Estimates based on previous year funding are acceptable if current 
appropriations are not available at the time of the submission;
    (4) Anticipated Source of Available Funds: The statutory authority 
for funding the program and, to the extent possible, agency, sub-
agency, or, if known, the specific program unit that will issue the 
Federal awards, and associated funding identifier (e.g., Treasury 
Account Symbol(s));
    (5) General Eligibility Requirements: The statutory, regulatory or 
other eligibility factors or considerations that determine the 
applicant's qualification for Federal awards under the program (e.g., 
type of non-Federal entity); and
    (6) Applicability of Single Audit Requirements as required by 
Subpart F--Audit Requirements of this Part.


Sec.  200.203  Notices of funding opportunities.

    For competitive grants and cooperative agreements, the Federal 
awarding agency must announce specific funding opportunities by 
providing the following information in a public notice:
    (a) Summary Information in Notices of Funding Opportunities. The 
Federal awarding agency must display the following information posted 
on the OMB-designated governmentwide Web site for finding and applying 
for Federal financial assistance, in a location preceding the full text 
of the announcement:
    (1) Federal Awarding Agency Name;
    (2) Funding Opportunity Title;
    (3) Announcement Type (whether the funding opportunity is the 
initial announcement of this funding opportunity or a modification of a 
previously announced opportunity);
    (4) Funding Opportunity Number (required, if applicable). If the 
Federal awarding agency has assigned or will assign a number to the 
funding opportunity announcement, this number must be provided;
    (5) Catalog of Federal Financial Assistance (CFDA) Number(s);
    (6) Key Dates. Key dates include due dates for applications or 
Executive Order 12372 submissions, as well as for any letters of intent 
or pre-applications. For any announcement issued before a program's 
application materials are available, key dates also include the date on 
which those materials will be released; and any other additional 
information, as deemed applicable by the relevant Federal awarding 
agency.
    (b) The Federal awarding agency must generally make all funding 
opportunities available for application for at least 60 calendar days. 
The Federal awarding agency may make a determination to have a less 
than 60 calendar day availability period but no funding opportunity 
should be available for less than 30 calendar days unless exigent 
circumstances require as determined by the Federal awarding agency head 
or delegate.
    (c) Full Text of Funding Opportunities. The Federal awarding agency 
must include the following information in the full text of each funding 
opportunity. For specific instructions on the content required in this 
section, refer to Appendix I to Part 200--Full Text of Notice of 
Funding Opportunity to this Part.
    (1) Full programmatic description of the funding opportunity.
    (2) Federal award information, including sufficient information to 
help an applicant make an informed decision about whether to submit an 
application. (See also Sec.  200.414 Indirect (F&A) costs, paragraph 
(b)).
    (3) Specific eligibility information, including any factors or 
priorities that affect an applicant's or its application's eligibility 
for selection.
    (4) Application Preparation and Submission Information, including 
the applicable submission dates and time.
    (5) Application Review Information including the criteria and 
process to be used to evaluate applications. See also Sec.  200.205 
Federal awarding agency review of risk posed by applicants. See also 2 
CFR Part 27.
    (6) Federal Award Administration Information. See also Sec.  
200.210 Information contained in a Federal award.


Sec.  200.204  Federal awarding agency review of merit of proposals.

    For competitive grants or cooperative agreements, unless prohibited 
by Federal statute, the Federal awarding agency must design and execute 
a merit review process for applications. This process must be described 
or incorporated by reference in the applicable funding opportunity (see 
Appendix I to this Part, Full text of the Funding Opportunity.) See 
also Sec.  200.203 Notices of funding opportunities.


Sec.  200.205  Federal awarding agency review of risk posed by 
applicants.

    (a) Prior to making a Federal award, the Federal awarding agency is 
required by 31 U.S.C. 3321 and 41 U.S.C. 2313 note to review 
information available through any OMB-designated repositories of 
governmentwide eligibility qualification or financial integrity 
information, such as Federal Awardee Performance and Integrity 
Information System (FAPIIS), Dun and Bradstreet, and ``Do Not Pay''. 
See also suspension and debarment requirements at 2 CFR Part 180 as 
well as individual Federal agency suspension and debarment regulations 
in title 2 of the Code of Federal Regulations.
    (b) In addition, for competitive grants or cooperative agreements, 
the Federal awarding agency must have in place a framework for 
evaluating the risks posed by applicants before they receive Federal 
awards. This evaluation may incorporate results of the evaluation of 
the applicant's eligibility or the quality of its application. If the 
Federal awarding agency determines that a Federal award will be made, 
special conditions that correspond to the degree of risk assessed may 
be applied to the Federal award. Criteria to be evaluated must be 
described in the announcement of funding opportunity described in Sec.  
200.203 Notices of funding opportunities.
    (c) In evaluating risks posed by applicants, the Federal awarding 
agency may use a risk-based approach and may consider any items such as 
the following:
    (1) Financial stability;
    (2) Quality of management systems and ability to meet the 
management standards prescribed in this Part;
    (3) History of performance. The applicant's record in managing 
Federal

[[Page 78623]]

awards, if it is a prior recipient of Federal awards, including 
timeliness of compliance with applicable reporting requirements, 
conformance to the terms and conditions of previous Federal awards, and 
if applicable, the extent to which any previously awarded amounts will 
be expended prior to future awards;
    (4) Reports and findings from audits performed under Subpart F--
Audit Requirements of this Part or the reports and findings of any 
other available audits; and
    (5) The applicant's ability to effectively implement statutory, 
regulatory, or other requirements imposed on non-Federal entities.
    (d) In addition to this review, the Federal awarding agency must 
comply with the guidelines on governmentwide suspension and debarment 
in 2 CFR Part 180, and must require non-Federal entities to comply with 
these provisions. These provisions restrict Federal awards, subawards 
and contracts with certain parties that are debarred, suspended or 
otherwise excluded from or ineligible for participation in Federal 
programs or activities.


Sec.  200.206  Standard application requirements.

    (a) Paperwork clearances. The Federal awarding agency may only use 
application information collections approved by OMB under the Paperwork 
Reduction Act of 1995 and OMB's implementing regulations in 5 CFR Part 
1320, Controlling Paperwork Burdens on the Public. Consistent with 
these requirements, OMB will authorize additional information 
collections only on a limited basis.
    (b) If applicable, the Federal awarding agency may inform 
applicants and recipients that they do not need to provide certain 
information otherwise required by the relevant information collection.


Sec.  200.207  Specific conditions.

    (a) Based on the criteria set forth in Sec.  200.205 Federal 
awarding agency review of risk posed by applicants or when an applicant 
or recipient has a history of failure to comply with the general or 
specific terms and conditions of a Federal award, or failure to meet 
expected performance goals as described in Sec.  200.210 Information 
contained in a Federal award, or is not otherwise responsible, the 
Federal awarding agency or pass-through entity may impose additional 
specific award conditions as needed under the procedure specified in 
paragraph (b) of this section. These additional Federal award 
conditions may include items such as the following:
    (1) Requiring payments as reimbursements rather than advance 
payments;
    (2) Withholding authority to proceed to the next phase until 
receipt of evidence of acceptable performance within a given period of 
performance;
    (3) Requiring additional, more detailed financial reports;
    (4) Requiring additional project monitoring;
    (5) Requiring the non-Federal entity to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (b) The Federal awarding agency or pass-through entity must notify 
the applicant or non-Federal entity as to:
    (1) The nature of the additional requirements;
    (2) The reason why the additional requirements are being imposed;
    (3) The nature of the action needed to remove the additional 
requirement, if applicable;
    (4) The time allowed for completing the actions if applicable, and
    (5) The method for requesting reconsideration of the additional 
requirements imposed.
    (c) Any special conditions must be promptly removed once the 
conditions that prompted them have been corrected.


Sec.  200.208  Certifications and representations.

    Unless prohibited by Federal statutes or regulations, each Federal 
awarding agency or pass-through entity is authorized to require the 
non-Federal entity to submit certifications and representations 
required by Federal statutes, or regulations on an annual basis. 
Submission may be required more frequently if the non-Federal entity 
fails to meet a requirement of a Federal award.


Sec.  200.209  Pre-award costs.

    For requirements on costs incurred by the applicant prior to the 
start date of the period of performance of the Federal award, see Sec.  
200.458 Pre-award costs.


Sec.  200.210  Information contained in a Federal award.

    A Federal award must include the following information:
    (a) General Federal Award Information. The Federal awarding agency 
must include the following general Federal award information in each 
Federal award:
    (1) Recipient name (which must match registered name in DUNS);
    (2) Recipient's DUNS number (see Sec.  200.32 Data Universal 
Numbering System (DUNS) number);
    (3) Unique Federal Award Identification Number (FAIN);
    (4) Federal Award Date (see Sec.  200.39 Federal award date);
    (5) Period of Performance Start and End Date;
    (6) Amount of Federal Funds Obligated by this action;
    (7) Total Amount of Federal Funds Obligated;
    (8) Total Amount of the Federal Award;
    (9) Budget Approved by the Federal Awarding Agency;
    (10) Total Approved Cost Sharing or Matching, where applicable;
    (11) Federal award project description, (to comply with statutory 
requirements (e.g., FFATA));
    (12) Name of Federal awarding agency and contact information for 
awarding official,
    (13) CFDA Number and Name;
    (14) Identification of whether the award is R&D; and
    (15) Indirect cost rate for the Federal award (including if the de 
minimis rate is charged per Sec.  200.414 Indirect (F&A) costs).
    (b) General Terms and Conditions
    (1) Federal awarding agencies must incorporate the following 
general terms and conditions either in the Federal award or by 
reference, as applicable:
    (i) Administrative requirements implemented by the Federal awarding 
agency as specified in this Part.
    (ii) National policy requirements. These include statutory, 
executive order, other Presidential directive, or regulatory 
requirements that apply by specific reference and are not program-
specific. See Sec.  200.300 Statutory and national policy requirements.
    (2) The Federal award must include wording to incorporate, by 
reference, the applicable set of general terms and conditions. The 
reference must be to the Web site at which the Federal awarding agency 
maintains the general terms and conditions.
    (3) If a non-Federal entity requests a copy of the full text of the 
general terms and conditions, the Federal awarding agency must provide 
it.
    (4) Wherever the general terms and conditions are publicly 
available, the Federal awarding agency must maintain an archive of 
previous versions of the general terms and conditions, with effective 
dates, for use by the non-Federal entity, auditors, or others.
    (c) Federal Awarding Agency, Program, or Federal Award Specific 
Terms and Conditions. The Federal awarding agency may include with each

[[Page 78624]]

Federal award any terms and conditions necessary to communicate 
requirements that are in addition to the requirements outlined in the 
Federal awarding agency's general terms and conditions. Whenever 
practicable, these specific terms and conditions also should be shared 
on a public Web site and in notices of funding opportunities (as 
outlined in Sec.  200.203 Notices of funding opportunities) in addition 
to being included in a Federal award. See also Sec.  200.206 Standard 
application requirements.
    (d) Federal Award Performance Goals. The Federal awarding agency 
must include in the Federal award an indication of the timing and scope 
of expected performance by the non-Federal entity as related to the 
outcomes intended to be achieved by the program. In some instances 
(e.g., discretionary research awards), this may be limited to the 
requirement to submit technical performance reports (to be evaluated in 
accordance with Federal awarding agency policy). Where appropriate, the 
Federal award may include specific performance goals, indicators, 
milestones, or expected outcomes (such as outputs, or services 
performed or public impacts of any of these) with an expected timeline 
for accomplishment. Reporting requirements must be clearly articulated 
such that, where appropriate, performance during the execution of the 
Federal award has a standard against which non-Federal entity 
performance can be measured. The Federal awarding agency may include 
program-specific requirements, as applicable. These requirements should 
be aligned with agency strategic goals, strategic objectives or 
performance goals that are relevant to the program. See also OMB 
Circular A-11, Preparation, Submission and Execution of the Budget Part 
6 for definitions of strategic objectives and performance goals.
    (e) Any other information required by the Federal awarding agency.


Sec.  200.211  Public access to Federal award information.

    (a) In accordance with statutory requirements for Federal spending 
transparency (e.g., FFATA), except as noted in this section, for 
applicable Federal awards the Federal awarding agency must announce all 
Federal awards publicly and publish the required information on a 
publicly available OMB-designated governmentwide Web site (at time of 
publication, www.USAspending.gov).
    (b) Nothing in this section may be construed as requiring the 
publication of information otherwise exempt under the Freedom of 
Information Act (5 U.S.C 552), or controlled unclassified information 
pursuant to Executive Order 13556.

Subpart D--Post Federal Award Requirements Standards for Financial 
and Program Management


Sec.  200.300  Statutory and national policy requirements.

    (a) The Federal awarding agency must manage and administer the 
Federal award in a manner so as to ensure that Federal funding is 
expended and associated programs are implemented in full accordance 
with U.S. statutory and public policy requirements: including, but not 
limited to, those protecting public welfare, the environment, and 
prohibiting discrimination. The Federal awarding agency must 
communicate to the non-Federal entity all relevant public policy 
requirements, including those in general appropriations provisions, and 
incorporate them either directly or by reference in the terms and 
conditions of the Federal award.
    (b) The non-Federal entity is responsible for complying with all 
requirements of the Federal award. For all Federal awards, this 
includes the provisions of FFATA, which includes requirements on 
executive compensation, and also requirements implementing the Act for 
the non-Federal entity at 2 CFR Part 25 Financial Assistance Use of 
Universal Identifier and Central Contractor Registration and 2 CFR Part 
170 Reporting Subaward and Executive Compensation Information. See also 
statutory requirements for whistleblower protections at 10 U.S.C. 2409, 
41 U.S.C. 4712, and 10 U.S.C. 2324, 41 U.S.C. 4304 and 4310.


Sec.  200.301  Performance measurement.

    The Federal awarding agency must require the recipient to use OMB-
approved governmentwide standard information collections when providing 
financial and performance information. As appropriate and in accordance 
with above mentioned information collections, the Federal awarding 
agency must require the recipient to relate financial data to 
performance accomplishments of the Federal award. Also, in accordance 
with above mentioned governmentwide standard information collections, 
and when applicable, recipients must also provide cost information to 
demonstrate cost effective practices (e.g., through unit cost data). 
The recipient's performance should be measured in a way that will help 
the Federal awarding agency and other non-Federal entities to improve 
program outcomes, share lessons learned, and spread the adoption of 
promising practices. The Federal awarding agency should provide 
recipients with clear performance goals, indicators, and milestones as 
described in Sec.  200.210 Information contained in a Federal award. 
Performance reporting frequency and content should be established to 
not only allow the Federal awarding agency to understand the recipient 
progress but also to facilitate identification of promising practices 
among recipients and build the evidence upon which the Federal awarding 
agency's program and performance decisions are made.


Sec.  200.302  Financial management.

    (a) Each state must expend and account for the Federal award in 
accordance with state laws and procedures for expending and accounting 
for the state's own funds. In addition, the state's and the other non-
Federal entity's financial management systems, including records 
documenting compliance with Federal statutes, regulations, and the 
terms and conditions of the Federal award, must be sufficient to permit 
the preparation of reports required by general and program-specific 
terms and conditions; and the tracing of funds to a level of 
expenditures adequate to establish that such funds have been used 
according to the Federal statutes, regulations, and the terms and 
conditions of the Federal award. See also Sec.  200.450 Lobbying.
    (b) The financial management system of each non-Federal entity must 
provide for the following (see also Sec. Sec.  200.333 Retention 
requirements for records, 200.334 Requests for transfer of records, 
200.335 Methods for collection, transmission and storage of 
information, 200.336 Access to records, and 200.337 Restrictions on 
public access to records):
    (1) Identification, in its accounts, of all Federal awards received 
and expended and the Federal programs under which they were received. 
Federal program and Federal award identification must include, as 
applicable, the CFDA title and number, Federal award identification 
number and year, name of the Federal agency, and name of the pass-
through entity, if any.
    (2) Accurate, current, and complete disclosure of the financial 
results of each Federal award or program in accordance with the 
reporting requirements set forth in Sec. Sec.  200.327 Financial 
reporting and 200.328 Monitoring and reporting program performance. If 
a Federal awarding agency requires reporting on an accrual basis from a 
recipient that maintains its

[[Page 78625]]

records on other than an accrual basis, the recipient must not be 
required to establish an accrual accounting system. This recipient may 
develop accrual data for its reports on the basis of an analysis of the 
documentation on hand. Similarly, a pass-through entity must not 
require a subrecipient to establish an accrual accounting system and 
must allow the subrecipient to develop accrual data for its reports on 
the basis of an analysis of the documentation on hand.
    (3) Records that identify adequately the source and application of 
funds for federally-funded activities. These records must contain 
information pertaining to Federal awards, authorizations, obligations, 
unobligated balances, assets, expenditures, income and interest and be 
supported by source documentation.
    (4) Effective control over, and accountability for, all funds, 
property, and other assets. The non-Federal entity must adequately 
safeguard all assets and assure that they are used solely for 
authorized purposes. See Sec.  200.303 Internal controls.
    (5) Comparison of expenditures with budget amounts for each Federal 
award.
    (6) Written procedures to implement the requirements of Sec.  
200.305 Payment.
    (7) Written procedures for determining the allowability of costs in 
accordance with Subpart E--Cost Principles of this Part and the terms 
and conditions of the Federal award.


Sec.  200.303  Internal controls.

    The non-Federal entity must:
    (a) Establish and maintain effective internal control over the 
Federal award that provides reasonable assurance that the non-Federal 
entity is managing the Federal award in compliance with Federal 
statutes, regulations, and the terms and conditions of the Federal 
award. These internal controls should be in compliance with guidance in 
``Standards for Internal Control in the Federal Government'' issued by 
the Comptroller General of the United States and the ``Internal Control 
Integrated Framework'', issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (COSO).
    (b) Comply with Federal statutes, regulations, and the terms and 
conditions of the Federal awards.
    (c) Evaluate and monitor the non-Federal entity's compliance with 
statute, regulations and the terms and conditions of Federal awards.
    (d) Take prompt action when instances of noncompliance are 
identified including noncompliance identified in audit findings.
    (e) Take reasonable measures to safeguard protected personally 
identifiable information and other information the Federal awarding 
agency or pass-through entity designates as sensitive or the non-
Federal entity considers sensitive consistent with applicable Federal, 
state and local laws regarding privacy and obligations of 
confidentiality.


Sec.  200.304  Bonds.

    The Federal awarding agency may include a provision on bonding, 
insurance, or both in the following circumstances:
    (a) Where the Federal government guarantees or insures the 
repayment of money borrowed by the recipient, the Federal awarding 
agency, at its discretion, may require adequate bonding and insurance 
if the bonding and insurance requirements of the non-Federal entity are 
not deemed adequate to protect the interest of the Federal government.
    (b) The Federal awarding agency may require adequate fidelity bond 
coverage where the non-Federal entity lacks sufficient coverage to 
protect the Federal government's interest.
    (c) Where bonds are required in the situations described above, the 
bonds must be obtained from companies holding certificates of authority 
as acceptable sureties, as prescribed in 31 CFR Part 223, ``Surety 
Companies Doing Business with the United States.''


Sec.  200.305  Payment.

    (a) For states, payments are governed by Treasury-State CMIA 
agreements and default procedures codified at 31 CFR Part 205 ``Rules 
and Procedures for Efficient Federal-State Funds Transfers'' and TFM 
4A-2000 Overall Disbursing Rules for All Federal Agencies.
    (b) For non-Federal entities other than states, payments methods 
must minimize the time elapsing between the transfer of funds from the 
United States Treasury or the pass-through entity and the disbursement 
by the non-Federal entity whether the payment is made by electronic 
funds transfer, or issuance or redemption of checks, warrants, or 
payment by other means. See also Sec.  200.302 Financial management 
paragraph (f). Except as noted elsewhere in this Part, Federal agencies 
must require recipients to use only OMB-approved standard 
governmentwide information collection requests to request payment.
    (1) The non-Federal entity must be paid in advance, provided it 
maintains or demonstrates the willingness to maintain both written 
procedures that minimize the time elapsing between the transfer of 
funds and disbursement by the non-Federal entity, and financial 
management systems that meet the standards for fund control and 
accountability as established in this Part. Advance payments to a non-
Federal entity must be limited to the minimum amounts needed and be 
timed to be in accordance with the actual, immediate cash requirements 
of the non-Federal entity in carrying out the purpose of the approved 
program or project. The timing and amount of advance payments must be 
as close as is administratively feasible to the actual disbursements by 
the non-Federal entity for direct program or project costs and the 
proportionate share of any allowable indirect costs. The non-Federal 
entity must make timely payment to contractors in accordance with the 
contract provisions.
    (2) Whenever possible, advance payments must be consolidated to 
cover anticipated cash needs for all Federal awards made by the Federal 
awarding agency to the recipient.
    (i) Advance payment mechanisms include, but are not limited to, 
Treasury check and electronic funds transfer and should comply with 
applicable guidance in 31 CFR Part 208.
    (ii) Non-Federal entities must be authorized to submit requests for 
advance payments and reimbursements at least monthly when electronic 
fund transfers are not used, and as often as they like when electronic 
transfers are used, in accordance with the provisions of the Electronic 
Fund Transfer Act (15 U.S.C. 1601).
    (3) Reimbursement is the preferred method when the requirements in 
paragraph (b) cannot be met, when the Federal awarding agency sets a 
specific condition per Sec.  200.207 Specific conditions, or when the 
non-Federal entity requests payment by reimbursement. This method may 
be used on any Federal award for construction, or if the major portion 
of the construction project is accomplished through private market 
financing or Federal loans, and the Federal award constitutes a minor 
portion of the project. When the reimbursement method is used, the 
Federal awarding agency or pass-through entity must make payment within 
30 calendar days after receipt of the billing, unless the Federal 
awarding agency or pass-through entity reasonably believes the request 
to be improper.
    (4) If the non-Federal entity cannot meet the criteria for advance 
payments and the Federal awarding agency or pass-through entity has 
determined that reimbursement is not feasible because the non-Federal 
entity lacks sufficient

[[Page 78626]]

working capital, the Federal awarding agency or pass-through entity may 
provide cash on a working capital advance basis. Under this procedure, 
the Federal awarding agency or pass-through entity must advance cash 
payments to the non-Federal entity to cover its estimated disbursement 
needs for an initial period generally geared to the non-Federal 
entity's disbursing cycle. Thereafter, the Federal awarding agency or 
pass-through entity must reimburse the non-Federal entity for its 
actual cash disbursements. Use of the working capital advance method of 
payment requires that the pass-through entity provide timely advance 
payments to any subrecipients in order to meet the subrecipient's 
actual cash disbursements. The working capital advance method of 
payment must not be used by the pass-through entity if the reason for 
using this method is the unwillingness or inability of the pass-through 
entity to provide timely advance payments to the subrecipient to meet 
the subrecipient's actual cash disbursements.
    (5) Use of resources before requesting cash advance payments. To 
the extent available, the non-Federal entity must disburse funds 
available from program income (including repayments to a revolving 
fund), rebates, refunds, contract settlements, audit recoveries, and 
interest earned on such funds before requesting additional cash 
payments.
    (6) Unless otherwise required by Federal statutes, payments for 
allowable costs by non-Federal entities must not be withheld at any 
time during the period of performance unless the conditions of 
Sec. Sec.  200.207 Specific conditions, Subpart D--Post Federal Award 
Requirements of this Part, 200.338 Remedies for Noncompliance, or the 
following apply:
    (i) The non-Federal entity has failed to comply with the project 
objectives, Federal statutes, regulations, or the terms and conditions 
of the Federal award.
    (ii) The non-Federal entity is delinquent in a debt to the United 
States as defined in OMB Guidance A-129, ``Policies for Federal Credit 
Programs and Non-Tax Receivables.'' Under such conditions, the Federal 
awarding agency or pass-through entity may, upon reasonable notice, 
inform the non-Federal entity that payments must not be made for 
obligations incurred after a specified date until the conditions are 
corrected or the indebtedness to the Federal government is liquidated.
    (iii) A payment withheld for failure to comply with Federal award 
conditions, but without suspension of the Federal award, must be 
released to the non-Federal entity upon subsequent compliance. When a 
Federal award is suspended, payment adjustments will be made in 
accordance with Sec.  200.342 Effects of suspension and termination.
    (iv) A payment must not be made to a non-Federal entity for amounts 
that are withheld by the non-Federal entity from payment to contractors 
to assure satisfactory completion of work. A payment must be made when 
the non-Federal entity actually disburses the withheld funds to the 
contractors or to escrow accounts established to assure satisfactory 
completion of work.
    (7) Standards governing the use of banks and other institutions as 
depositories of advance payments under Federal awards are as follows.
    (i) The Federal awarding agency and pass-through entity must not 
require separate depository accounts for funds provided to a non-
Federal entity or establish any eligibility requirements for 
depositories for funds provided to the non-Federal entity. However, the 
non-Federal entity must be able to account for the receipt, obligation 
and expenditure of funds.
    (ii) Advance payments of Federal funds must be deposited and 
maintained in insured accounts whenever possible.
    (8) The non-Federal entity must maintain advance payments of 
Federal awards in interest-bearing accounts, unless the following 
apply.
    (i) The non-Federal entity receives less than $120,000 in Federal 
awards per year.
    (ii) The best reasonably available interest-bearing account would 
not be expected to earn interest in excess of $500 per year on Federal 
cash balances.
    (iii) The depository would require an average or minimum balance so 
high that it would not be feasible within the expected Federal and non-
Federal cash resources.
    (iv) A foreign government or banking system prohibits or precludes 
interest bearing accounts.
    (9) Interest earned on Federal advance payments deposited in 
interest-bearing accounts must be remitted annually to the Department 
of Health and Human Services, Payment Management System, Rockville, MD 
20852. Interest amounts up to $500 per year may be retained by the non-
Federal entity for administrative expense.


Sec.  200.306   Cost sharing or matching.

    (a) Under Federal research proposals, voluntary committed cost 
sharing is not expected. It cannot be used as a factor during the merit 
review of applications or proposals, but may be considered if it is 
both in accordance with Federal awarding agency regulations and 
specified in a notice of funding opportunity. Criteria for considering 
voluntary committed cost sharing and any other program policy factors 
that may be used to determine who may receive a Federal award must be 
explicitly described in the notice of funding opportunity. Furthermore, 
only mandatory cost sharing or cost sharing specifically committed in 
the project budget must be included in the organized research base for 
computing the indirect (F&A) cost rate or reflected in any allocation 
of indirect costs. See also Sec. Sec.  200.414 Indirect (F&A) costs, 
200.203 Notices of funding opportunities, and Appendix I to Part 200--
Full Text of Notice of Funding Opportunity.
    (b) For all Federal awards, any shared costs or matching funds and 
all contributions, including cash and third party in-kind 
contributions, must be accepted as part of the non-Federal entity's 
cost sharing or matching when such contributions meet all of the 
following criteria:
    (1) Are verifiable from the non-Federal entity's records;
    (2) Are not included as contributions for any other Federal award;
    (3) Are necessary and reasonable for accomplishment of project or 
program objectives;
    (4) Are allowable under Subpart E--Cost Principles of this Part;
    (5) Are not paid by the Federal government under another Federal 
award, except where the Federal statute authorizing a program 
specifically provides that Federal funds made available for such 
program can be applied to matching or cost sharing requirements of 
other Federal programs;
    (6) Are provided for in the approved budget when required by the 
Federal awarding agency; and
    (7) Conform to other provisions of this Part, as applicable.
    (c) Unrecovered indirect costs, including indirect costs on cost 
sharing or matching may be included as part of cost sharing or matching 
only with the prior approval of the Federal awarding agency. 
Unrecovered indirect cost means the difference between the amount 
charged to the Federal award and the amount which could have been to 
the Federal award under the non-Federal entity's approved negotiated 
indirect cost rate.
    (d) Values for non-Federal entity contributions of services and 
property must be established in accordance with Sec.  200.434 
Contributions and donations. If a Federal awarding agency authorizes 
the non-Federal entity to donate

[[Page 78627]]

buildings or land for construction/facilities acquisition projects or 
long-term use, the value of the donated property for cost sharing or 
matching must be the lesser of paragraphs (d)(1) or (2) of this 
section.
    (1) The value of the remaining life of the property recorded in the 
non-Federal entity's accounting records at the time of donation.
    (2) The current fair market value. However, when there is 
sufficient justification, the Federal awarding agency may approve the 
use of the current fair market value of the donated property, even if 
it exceeds the value described in (1) above at the time of donation.
    (e) Volunteer services furnished by third-party professional and 
technical personnel, consultants, and other skilled and unskilled labor 
may be counted as cost sharing or matching if the service is an 
integral and necessary part of an approved project or program. Rates 
for third-party volunteer services must be consistent with those paid 
for similar work by the non-Federal entity. In those instances in which 
the required skills are not found in the non-Federal entity, rates must 
be consistent with those paid for similar work in the labor market in 
which the non-Federal entity competes for the kind of services 
involved. In either case, paid fringe benefits that are reasonable, 
necessary, allocable, and otherwise allowable may be included in the 
valuation.
    (f) When a third-party organization furnishes the services of an 
employee, these services must be valued at the