New OMB Grants Guidance Strengthens Role of Non-Profits

Washington, DC (December 19, 2013) – The White House Office of Management and Budget (OMB) has released its long-anticipated overhaul of federal grants policies and procedures. The new OMB policies will make it easier for non-profit organizations to implement and meet the requirements of federal grants through state and local agencies. This should help strengthen the role of non-profits in working collaboratively with governments toward achieving urban forestry public policy objectives.

ombCharitable nonprofits achieved several important goals with the new guidance that will strengthen organizations performing work in communities on behalf of governments and the nonprofit community as a whole. The new federal grants guidance addresses nonprofit concerns, and streamlines reporting and accounting.

Titled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” the final guidance [pre-publication copy] will require state and local governments using federal funds to reimburse nonprofit contractors and grantees for reasonable indirect costs, sometimes called administrative or overhead expenses.

The guidance will also allow nonprofits to focus more on delivering services in their communities, and spend less money on wasteful paperwork by raising the Single Audit threshold to $750,000, eliminating duplicative and unnecessary audit criteria, and clarifying cost allocation rules.

A statement from the National Council of Nonprofits summarized the significance of the new OMB guidance:

“The new guidance means that nonprofits should be able to focus more on their missions and should be under less pressure to raise additional funds to essentially subsidize governments. In turn, charities with no government contracts or grants could see less competition for scarce philanthropic dollars. This is a major win for the entire charitable nonprofit community.”

At issue is the clear requirement in the guidance that pass-through entities (typically state and local governments) reimburse their nonprofit contractors and grantees for their reasonable indirect costs. A nationwide study published December 5th by the Urban Institute found that governments arbitrarily limit indirect costs for necessary program and organizational expenses; one in four nonprofits (24%) reported that governments refuse to pay any indirect costs of the organization, and half (49%) reported that they were limited to 7% or less. This will no longer be tolerated when federal funds are involved.

Highlights from the new OMB Grants Guidance:

  • Indirect Costs: The OMB Guidance explicitly requires pass-through entities (typically states and local governments receiving federal funding) to either honor a nonprofit’s negotiated indirect cost rate if one already exists or negotiate a rate in accordance with federal guidelines. Nonprofits will be empowered to elect an automatic indirect cost rate of 10 percent of modified total direct costs (MTDC) – which can be used indefinitely if they so choose – or negotiate a higher rate.
  • Direct Costs: The guidance makes clear that, in certain circumstances, program administration (e.g., secretarial staff dedicated to a specific program) can be reported as direct, rather than as indirect, costs.
  • Audit Rules: The new guidance also raises the threshold for a single audit (A-133) requirement from $500,000 to $750,000, thus reducing costs for smaller contracts and grants.
  • Streamlining Federal Guidance: The new guidance consolidates and streamlines eight OMB circulars, including OMB Circulars 110 and 122 that relate to charitable nonprofits. As a result, applications and reporting will be standardized and streamlined to provide more consistency across various federal agencies.
  • Effective Date: Unclear, but presumably a year after publication in the Federal Register on December 26, 2013.

Learn more from the National Council of Nonprofits, which actively promotes reforms to government contracting and grants such as these being implemented by the federal government.