Copyright © 2002, United States Conference of Catholic Bishops, Inc. All rights reserved.
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X. Federal Funding
GeneralThe past several decades have seen huge increases in federal awards to state and local governments and non-profit organizations. Many of these federal awards are of a social service nature and have been granted to church-related organizations interested in meeting the needs of the underprivileged in this country (e.g., foster care grants to Catholic Charities). As the amounts awarded to governmental units and non-profit organizations have increased, so have the attempts to ensure that such funds are spent as intended and that such funds are not subject to fraud, waste, and abuse. Additionally, the terms of federal awards are becoming more restrictive with regard to the religious character that may be involved with the use of those funds. Accordingly, care should be exercised to safeguard the free exercise of our Catholic faith.
Certain organizations expending $500,000 (effective for audit periods ending after December 31, 2003) or more in federal awards are subject to the Single Audit Act Amendments of 1996 (P.L. 104-156), as well as the United States Office of Management and Budget's (OMB) Circular A-133, Audits of States, Local Governments and Non-Profit Organizations.
Recipients of federal funds subject to OMB Circular A-133 include non-profit organizations such as colleges and universities, hospitals, museums, libraries, and health and welfare agencies. These entities operate in an environment that often has two specific attributes:
- These organizations often carry out the programs legislated by Congress. To do that, they receive federal grants and contracts that include certain terms and conditions that must be met. Administrative rules and cost principles, as well as specific statutory requirements, dictate the responsibilities imposed by the receipt of federal funds. A considerable amount of federal government guidance on audits of these organizations deals with the receipt and expenditure of such awards.
- These organizations generally have tax-exempt status under applicable provisions of the Internal Revenue Code. As a condition of receiving tax-exempt status, many of these non-profit organizations agree to limit or handle in accordance with federal regulations certain activities (e.g., lobbying, operating a business that is not related to the exempt purpose, etc.).
Responsibilities of the Receiving OrganizationBy accepting donations from individuals or organizations that have attached restrictions to the donation, an organization incurs a legal and moral obligation to adhere to the restrictions imposed by the donor. The clear alternative is not to accept the donation. Federal awards are no different in this respect. The receipt of federal funds in any form as explained below implicitly acknowledges acceptance of grant-imposed responsibilities. Ignoring or inadequately adhering to these requirements may cause the agency to refuse further funding or even require the return of the federal funds granted.
It should be noted that non-profit organizations may receive federal funds directly (i.e., from the federal government) or indirectly (i.e., the funds may be passed through from state or local governments or other non-profit organizations). Even if the funds are received indirectly, the organization is still subject to A-133 requirements.
Data Collection FormOne of the products of an audit conducted in accordance with OMB Circular A-133 is the completion of form SF-SAC, Data Collection Form for Reporting on Audits of States, Local Governments and Nonprofit Organizations. The form summarizes information regarding the grantee, the auditor work performed, and the results of the audit work, including any findings. Parts of the form are to be completed by the auditor and other parts are to be completed by the grantee. The completed form is to be signed by the auditor and the grantee and mailed, along with one or more copies of the grantee’s reporting package, to the Single Audit Clearinghouse in Jeffersonville, Indiana. The clearinghouse uses the information to ensure all covered entities have a Single Audit and to create a database that summarizes results from all single audits. The form also ensures that the correct number of reporting packages is received for forwarding to Federal granting agencies.
Defining Federal AwardsFederal awards include not only cash but also other types of assistance. There are fifteen types of assistance, of which seven are financial and eight are nonfinancial.
- Formula grants
- Project grants
- Direct payments for specified use
- Direct payments with unrestricted use
- Direct loans
- Guaranteed or insured loans
- Sale, exchange, or donation of property and goods
- Use of property, facilities, and equipment
- Provision of specialized services
- Advisory services and counseling
- Dissemination of technical information
- Investigation of complaints
- Federal employment
Compliance with Laws and RegulationsAn exhaustive analysis of the requirements imposed on an organization receiving federal funds is beyond the scope of this section. What follows is general background on the kinds of requirements to which an organization may subject itself, as well as some direction for how to determine conclusively what the organization must do to meet those requirements. These compliance requirements subject to audit testing are found in the OMB Circular A-133 Compliance Supplement.
Not all of the compliance requirements necessarily apply to a given program. To determine which requirements do apply, the grant agreement, United States Statutes, the United States Code of Federal Regulations (CFR), and the Catalog of Federal Domestic Assistance are sources that may be consulted.
- Activities allowed or unallowed.Requires that the types of goods or services purchased with federal awards be specified as allowable under program requirements.
- Allowable costs/cost principles.Prescribe direct and indirect costs allowable as costs of federally funded programs. (These are further described in various OMB circulars.)
- Cash management.Requires recipients to have procedures to minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by the recipient.
- Davis-Bacon Act.Requires that, when required by federal grant program legislation, wage rates paid to laborers on federally financed construction projects at least equal regionally prevailing rates.
- Eligibility.Specifies the criteria for determining the individuals, groups of individuals, or subrecipients that can participate in the program and the amounts for which they qualify.
- Equipment and real property management.Requires organizations to maintain an equipment and property management system for its federal award programs and related activities in accordance with certain federal standards.
- Matching, level of effort, earmarking.Requires that an organization receiving federal awards contribute its own resources to programs funded in some specified ratio to resources provided by the funding source.
- Period of availability of federal funds.Requires—where a funding period is specified—that a recipient charge to the grant only allowable costs resulting from obligations incurred during the funding period and any pre-award costs or carryover balances authorized by the federal awarding agency and the applicable cost circular.
- Procurement and suspension and debarment.Requires the following:
- That recipients establish procedures for the procurement of supplies and other expendable property, equipment, real property, and other services with federal funds to ensure that such materials and services are obtained in an effective manner and in compliance with the provisions of applicable federal statutes and executive orders.
- That contracts not be made to parties that are suspended or debarred or whose principals are suspended or debarred.
- Program income.Requires that gross income received which is directly generated by the federally-funded project during the grant period be retained by the recipient and used in accordance with federal awarding agency regulations or the terms and conditions of the award.
- Real property acquisition and relocation assistance.These requirements deal with real property acquisition, appraisal, negotiation, and relocation when federal awards are used.
- Reporting.Requires that specific reports be filed and stipulates additional requirements that apply to those reports.
- Subrecipient monitoring.Requires federal award recipients (pass-through entities) to have adequate monitoring and follow-up that covers entities to which they have in turn awarded federal funds.
- Special tests and provisions.Includes other provisions for which federal agencies have determined that noncompliance could have a direct and material effect on the program.
The first place to look for these requirements is the grant document itself. Because all of these requirements are imposed by contract (as opposed to being a matter of law), all should be incorporated into the grant or contract either directly or by reference—so read the document first. Also, many grants or contracts, although quite brief, will refer to standard attachments that are incorporated by reference into every grant issued by a given agency.
OMB has issued a number of circulars that may be incorporated completely or partially by reference in grant or contract. Some of the more important circulars are as follows:
The first circular, A-110, includes many of the administrative requirements pertaining to federally funded programs. These last two—A-21 and A-122—establish the principles to be used in determining the costs of grants and contracts, including the basic principles of allowable and unallowable costs and the mechanics involved in establishing indirect cost rates.
- A-110—Uniform Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Institutions
- A-21—Cost Principles for Educational Institutions
- A-122—Cost Principles for Nonprofit Organizations
Federal sponsors want to ensure that the limited financial assistance is spent appropriately by non-profit organizations. Over the past few years, the federal government has continued to change promulgated cost principles to stop perceived abuses by recipients of federal funds. In many instances, these changes have simply reduced the recipients' ability to recover the cost of the program or research. While, in the past, the government was committed to full cost recovery by recipients of federal funds, the introduction of limitations on the amount of costs recovered has forced more organizations to increase their internal contributions to the programs.
Related Regulatory and Professional LiteratureMany of the publications referred to in this chapter are available on the Internet. See Appendix B, "Resources," for web addresses.