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OMB Proposes Long-Awaited Federal Grant Reforms, Seeks Public Comments

Michael J. Vernick

Michael J. Vernick,

Washington, D.C.

William (Bill) F. Ferreira

William (Bill) F. Ferreira,

Washington, D.C.

Pete Dungan

10 April 2012
On February 28, 2012, the Office of Management and Budget published a long-awaited Advance Notice of Proposed Guidance (ANPG) titled Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Administrative Requirements (Including Single Audit Act).  The sponsored research community was cautiously hopeful that the proposed reforms would yield meaningful reductions in federal award administration and cost accounting burdens.  Unfortunately, the proposed reforms are somewhat underwhelming at this stage, particularly for large universities and academic medical centers. 
OMB Proposes Long-Awaited Federal Grant Reforms, Seeks Public Comments

Of note:

  • The grantee community advocated for significant changes to effort reporting – the process used to document salary costs to awards, which is among the most onerous of all research compliance requirements.  But the grants community will have to wait; the proposed reforms take no concrete position on effort reporting.  At this time it is unlikely that the Inspector General and audit communities are prepared to make sweeping changes to effort reporting.  A series of baby steps might be the most we can expect for effort reporting reform, but OMB may still surprise us.
  • The proposed reform to indirect cost rates should be monitored carefully.  Universities already heavily subsidize scientific research operations and will resist any reforms that reduce indirect recovery.    Moving to a mandatory flat rate would be a substantial change; it is unclear how OMB would develop a flat rate methodology that achieves equity across the various types of research institutions.  Also unclear is how OMB would handle new recipients that have never had an indirect cost rate.
  • Consolidation of the federal cost principles into one document is an admirable goal.  However, the devil is in the details.  There are noteworthy distinctions among the circulars as to indirect cost recovery, effort reporting, and in other areas.  Whether and and in what manner OMB irons out these differences is critical to successful reform.  For example, with respect to effort reporting, Circulars A-21 and A-122 differ in terms of timing and acceptable methods of documenting compensation costs.  Yet to be seen is whether OMB believes these and other variations merit survival in a consolidated circular.
  • OMB’s proposal to clarify circumstances under which grantees may charge administrative support costs directly to an award has the potential to bring needed clarity to an area that has been subject to varying interpretations by auditors, OIGs, and grantees.   Direct charging of salary and non-salary administrative costs has been subject to substantial scrutiny in recent years. Grants management professionals are hopeful that revised guidance will promote both clarity and consistency in this area.
  • OMB is poised to make certain computing devices expressly allowable as direct cost routine supplies.  We should be careful not to overstate this reform – these devices, like other supplies, would still need to meet the direct cost test (e.g., identifiable with a particular sponsored project, etc.).
  • The proposal to supplement merit review with a review of a recipient’s “financial risk” in the award process is potentially significant.  How will agencies obtain an accurate picture of financial risk?  For example, federal audit reports frequently contain adverse determinations and recommendations to repay substantial sums – all information that may paint institutions in a negative financial light.  But what is not apparent from the public record is that many institutions successfully contest these audit findings and some ultimately resolve an audit without any repayment.  Will agencies talk to each other about this?
  • Many in the sponsored research community question the utility of A-133 audits in terms of enhancing compliance.  These are expensive and time consuming audits.  Smaller grantees will welcome the new A-133 threshold as well as the proposal to scale back these audits.  Whether in fact the new “focused version” of the A-133 audit reduces burdens may come to depend on whether sponsors exercise coordinated discretion in selection of the “second compliance requirement.” One could imagine a scenario in which four different sponsors choose four different compliance requirements as the second area of focus, thereby eliminating any process efficiencies.
  • Under the current regime, the A-133 audit resolution process can be adversarial and somewhat ad hoc in nature.  Thus it is significant that OMB now proposes to treat this process as a collaborative “mediation” among agencies and the recipient.  Achieving a more conciliatory audit resolution process is commendable, but much is left for agency interpretation under OMB’s current language.  What precisely qualifies as a mediation?
  • Under the proposed reforms, it’s doubtful that pass-through entities would see a significant reduction in subrecipient monitoring burdens.  Although prime recipients would no longer have to duplicate Federal efforts to resolve subawardee audit findings, they would still be responsible for ensuring subrecipient compliance with audit resolution as it applies to the subaward.

Comments on the Advance Notice of Proposed Guidance are due to OMB by April 30, 2012.

Contributed by:

OMB Proposes Long Awaited Federal Grant Reforms Seeks Public Comments

Michael J. Vernick

+ 1 202 637 5878

michael.vernick@hoganlovells.com

 

OMB Proposes Long Awaited Federal Grant Reforms Seeks Public Comments

 William F. Ferreira

+ 1 202 637 5596

william.ferreira@hoganlovells.com

 

Michael J. Vernick

Michael J. Vernick,

Washington, D.C.

William (Bill) F. Ferreira

William (Bill) F. Ferreira,

Washington, D.C.

Pete Dungan

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