Are Your Written Policies in Alignment with Uniform Guidance?
In the last few years, the Office of Management and Budget (OMB) retooled the administrative guidance for organizations receiving federal awards. The Uniform Guidance established – among other things – that non-federal entities should have written policies and procedures in place that support their control environment. This emphasis on written policies ensures federal grants and awards are used as intended.
When the updated Uniform Guidance was first released, some nonprofit organizations felt the written policy requirements were quite stringent. But even if the guidance creates additional burdens, nonprofits should try to see the silver lining. That is, is establishing policies and procedures for internal controls (and putting those policies and procedures in writing) decreases the likelihood that federal awards are abused and helps insulate their organizations from accusations of fund misappropriation.
Section 200.303 of the Code of Federal Regulations maintains that public and nonprofit entities that receive Federal funding – whether from the Federal government directly or from a third-party entity – would be wise to establish internal controls that comply with the Committee of Sponsoring Organization (COSO) framework. The COSO framework states that internal controls should provide reasonable assurance that:
- The organization’s operations are effective and efficient.
- The organization’s financial reporting is reliable.
- The organization is operating under applicable laws and regulations.
While the COSO framework establishes standards for internal controls, the Uniform Guidance tells nonprofits how to put those standards into writing. Nonprofits should create written policies that describe their control environments in each of the following areas:
Salaries
Written procedures should show that compensation and fringe benefits are reasonable and allowable under federal cost guidelines.
Record Retention
All records relating to Federal awards must be kept for a period required by the grant, and the written policies should explain how the organization retains and protects those records.
Conflicts of Interest
The organization’s policies must describe how conflicts of interest are avoided at the employee and organizational levels. The policy should state what actions or activities generate a conflict and what disciplinary actions the organization takes if a conflict of interest is discovered.
Procurement
The organization must prove that its procedures allow for the full and open competition from all vendors to minimize costs to the awarding agency.
Advance Payments
A nonprofit’s policies should detail how to advance payments of Federal funds are used, where they are held, what the organization does with interest earned, and how quickly those funds are disbursed once they are received.
Equipment
Internal control policies should outline how the company manages equipment usage and inventory, how and when they retire assets, and how they use proceeds from asset disposals.
Financial Management
Once the funds are received, the nonprofit’s policies should state how they trace those funds through its operations. Standards typically require the nonprofit to track funds by the award’s name and its Catalog of Federal Domestic Assistance (CFDA) number.
Allowable Costs
The organization should have controls in place that ensure only allowable costs are charged against the Federal award. Those approving the expenditures should also be aware of their responsibility. The written policies should outline how the organization determines if a cost is reasonable, determine if an expense is a direct or indirect cost, or how the team knows if an expense limit has been reached.
These written policy expectations are just a handful of what’s listed in the OMB’s Uniform Guidance. Before you apply for or accept your next federal award, it would be wise to review this guidance again. See if your written policies and procedures are doing what they’re intended to do, and make sure they fulfill the requirements set out in the OMB’s expectations. Making just a few tweaks to comply with the Uniform Guidance will help you in more ways than only meeting compliance standards. Having more robust internal controls can make your organization stronger and better able to support its mission.
Contact Us
If you have questions about the information outlined above, need assistance reviewing your controls to see if they’re in alignment with the OMB guidance, or need assistance with another nonprofit-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.