The Super Circular: Navigating the Changes

On December 26, 2013, the Office of Management and Budget (OMB) released new guidance on Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, which has been nicknamed the “Super Circular.” These significant changes are the result of over two years of work by both federal and nonfederal financial assistance sectors overseen by the Council on Financial Assistance Reform. The new guidance affects entities receiving and administering federal awards as well as auditors responsible for auditing federal awards programs.

The enacting guidance in the Federal Register summarizes their action by stating, “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.”

These changes are intended to improve administration of federal grant operations from the new uniform application process to the 'close-out' process. These changes modernize cost accounting, and improve the audit process, where the threshold for a Single Audit has been increased to $750,000 in annual federal expenditures. It is important to note, entities not expending more than $750,000 are not required to have a Single Audit; however, the administrative requirements and cost principles still apply.

Previous OMB Circulars combined into the new Super Circular include: Cost Principles Circulars A-21 for Education Institutions; A-87, for State & Local Governments; and A-122 for Non-Profit Organizations; the Circular A-89, Catalog of Federal Domestic Assistance; the Administrative Requirements Circulars A-102, for State and Local Governments; A-110 for Institutions of Higher Education, Hospitals and Other Non-Profit Organizations; and the Circulars A-133 Single Audit Guidance and A-50 Audit Follow-up. The new Super Circular breaks down into the following subparts: Subpart A–Acronyms and Definitions; Subpart B–General Provisions; Subpart C–Pre-Federal Award Requirements; Subpart D–Post Federal Award Requirements; Subpart E–Cost Principles; and Subpart F–Audit Requirements.

Does the Super Circular Apply to My Organization?

The Super Circular applies to federal agencies that make federal awards to non-federal entities, as well as to non-federal entities that receive federal grant funds. Under the Super Circular, a non-federal entity receiving federal grant funds may be a direct recipient of those funds or a subrecipient receiving federal funds through a subaward. Any non-federal entity that provides a subaward to a subrecipient to carry out part of a federal program is considered a pass-through entity. Thus, as noted above, in some cases, an organization may be a recipient or a subrecipient; in other cases, it may be a pass-through entity.

Different rights and responsibilities apply to non-federal entities depending on whether they are recipients, subrecipients or pass-through entities. Pass-through entities are required to follow the Super Circular requirements applicable to pass-through entities but not requirements directed toward federal awarding agencies unless the Super Circular or the terms and conditions of their federal awards specifically indicate otherwise.

What are the Changes? 

The significant changes include modifications to organization and terminology, internal control requirements, cost principles, and single audit requirements. Reforms to cost principles are contained in Sections 200.400 through 200.475, with a goal of eliminating duplication and inconsistencies between entities. Some of the other key changes are highlighted below:

Greater clarity by replacing the word “vendor” with “contractor” - For purposes of the guidance, when a non-Federal entity provides funds from a Federal award to a non-Federal entity, the non-Federal entity receiving these funds may be either a subrecipient or a contractor. 

Emphasis on performance goals and performance - Provides more robust guidance to Federal agencies to measure performance in a way that will help the Federal awarding agency 

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.

Emphasis on performance goals and performance reporting - 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 improve program outcomes, share lessons learned, and spread the adoption of promising practices. Recipients must be required to relate financial data to performance accomplishments and must also provide cost information to demonstrate cost effective practices.

Increased emphasis on internal controls - The non-Federal entity must 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).

In Summary

Obviously, there's a great deal of detail contained in the consolidation and modification of eight circulars that cannot be included here. A thorough reading and understanding of this guidance by all individuals responsible for federal grant activities within nonfederal entities is important—not only to increase the potential amount of federal awards received and assure compliance with federal award requirements, but also to provide a foundation for the design of a strong internal control system that can encompass all aspects of the organization’s federal grant activities.