OFFICE
OF MANAGEMENT AND BUDGET
Cost Principles
for Educational Institutions, for State, Local, and Indian Tribal
Governments and for Non-Profit Organizations
AGENCY:
Office of Management and Budget
ACTION:
Proposed revisions to Office of Management and Budget (OMB) cost principles'
Circulars A-21, A-87, and A-122
SUMMARY:
OMB proposes to amend OMB cost principles A-21, A-87, and A-122. These
changes are intended to further the objectives of Public Law (P. L.) 106-107,
the Federal Financial Assistance Management Improvement Act. On May 18,
2001, agencies working with OMB published a plan to implement P. L.106-107.
The plan included a proposal to simplify the cost principles to make the
descriptions of similar cost items consistent with one another where possible,
thus reducing the possibility of misinterpretation.
DATES:
All comments on this proposal should be in writing and must be received
by October 11, 2002.
ADDRESSES:
Due to potential delays in OMB's receipt and processing of mail sent through
the U. S. Postal Service, we encourage respondents to submit comments
electronically to ensure timely receipt. We cannot guarantee that comments
mailed will be received before the comment closing date.
Electronic
comments may be submitted to: hai_m._tran@omb.eop.gov.
Please include "Cost Principles Revision Comments" in the subject
line and put the full body of your comments in the text of the electronic
message and as an attachment. Please include your name, title, organization,
postal address, telephone number, and E-mail address in the text of the
message. Comments may also be submitted via facsimile to 202-395-4915.
Comments may be mailed to Gilbert Tran, Office of Federal Financial Management,
Office of Management and Budget, Room 6025, New Executive Office Building,
NW, Washington, DC 20503.
FOR FURTHER
INFORMATION CONTACT: Gilbert Tran, Office of Federal Financial Management,
Office of Management and Budget, (202) 395-3052 (direct) or (202) 395-3993
(main office) and E-mail: hai_m._tran@omb.eop.gov.
SUPPLEMENTARY
INFORMATION:
Background
The Federal
Financial Assistance Management Improvement Act of 1999 (P.L.106-107)
provides both a mandate and a challenge for the administration of Federal
financial assistance programs and activities. The purposes of P. L. 106-107
are to (1) improve the effectiveness and performance of Federal financial
assistance programs, (2) simplify Federal financial assistance application
and reporting requirements, (3) improve the delivery of services to the
public, and (4) facilitate greater coordination among those responsible
for delivering the services. Federal financial assistance includes grants,
cooperative agreements, loans, loan guarantees, scholarships, and other
forms of assistance.
The grant
and cooperative agreement portion of that enterprise, commonly referred
to as "grants," involves more than 600 programs and their subprograms,
with awards of more than $325 billion a year administered by 26 Federal
agencies. Grant programs stimulate or support public purposes in areas
such as health, social services, law enforcement, agriculture, housing,
community and regional development, economic development, education and
training, and national security. Many of these programs require complex
arrangements, such as intergovernmental coordination or public-private
partnerships, to coordinate and deliver the needed services. Among the
recipient constituencies are State, local, and Native American tribal
governments, public housing authorities and resident organizations, and
private, non-profit organizations, including institutions of higher education.
The funding mechanisms for these programs include mandatory grants, such
as formula and block grants, and discretionary grants and cooperative
agreements in support of specific programs or projects.
P. L. 106-107
states that some Federal administrative requirements are duplicative,
burdensome, and conflicting, sometimes impeding cost-effective delivery
of services at the local level. Grant recipients deal with increasingly
complex problems that require the delivery and coordination of many kinds
of services. Their need to respond to numerous Federal grant administration
requirements only adds to that complexity.
Implementation
of P. L. 106-107
The Director
of OMB partnered with the Department of Health and Human Services (HHS)
and the former Grants Management Committee (GMC) of the Chief Financial
Officers Council to coordinate and oversee the government-wide implementation
of P. L. 106-107. Five interagency groups were established to implement
the steps laid out in the plan that was submitted to Congress and OMB
on May 18, 2001.
The General Policy and Oversight group provides detailed oversight of
the other work groups' planning and implementation efforts and is examining
broad issues. Three groups represent various parts of the grant life cycle:
Pre-Award; Post-Award; and Audit Oversight. The Electronic Processing
group supports the development of an electronic option for application
for and reporting of grants.
The Post-Award group includes a cost consistency sub-group charged with
reviewing the cost principles in OMB Circulars A-21, A-87, and A-122 to
ensure they are current, consistent, and appropriate for covered recipients.
The sub-group's objectives are to make the descriptions of similar cost
items consistent, where possible, and reduce the possibility of misinterpretation
by clarifying existing policies. The sub-group's mission did not include
adding restrictions or modifying current requirements.
The three OMB's cost circulars established government-wide principles
for costs incurred under Federal awards (Circulars A-21, "Cost Principles
for Educational Institutions;" A-87, "Cost Principles for State,
Local and Indian Tribal Governments;" and A-122, "Cost Principles
for Non-Profit Organizations"). These cost principles specify allowable
and unallowable costs. The three circulars apply to different types of
recipient entities and were developed accordingly. As a result, in a number
of cases, similar cost items are described in varying terms. This can
cause inconsistent interpretations by Federal staff, recipients, and auditors.
Public comments indicate the need for language that is more consistent
and for clarification regarding some aspects of the cost principles. Many
Federal assistance grant programs require organizations that are subject
to different cost circulars to work together in consortia to achieve the
objectives of a grant program. It is important in these situations that,
to the greatest extent possible, all participants in a consortium be subject
to the same treatment for the same kinds of transactions.
The groups'
focused initially on the definitions in the circulars and the 30 cost
items that appear in all three cost circulars. They drafted common descriptions
for those cost items that should have similar treatment, but are currently
described differently. Where different outcomes are intended, the language
should definitely show the difference. Those cost items that are currently
in one or more but not all of the circulars also have been reviewed to
determine if it is appropriate and beneficial to include them in one or
both of the other cost circulars. In those cases where the groups believe
that a cost principle in one circular might be applicable to entities
subject to the other circulars, they have tried to state the principle
in such a way that it does not change the current policy in the circulars
to which the principle is added. In all of the cases where a cost principle
in one circular has been applied to one or both of the other circulars,
we have done that only to clarify that the outcome is the same under the
circular(s) to which the principle is added.
The approach
included:
- Reviewing
the cost item descriptions in all the circulars;
- Noting
the similarities and differences in the descriptions;
- Researching
the history of the cost policies related to the cost item;
- Determining
if the cost policies are consistent among the circulars;
- Preparing
common language, where possible, for the descriptions of those cost
items that have a consistent cost policy basis; and
- Restating
the principles in simpler language, to the extent possible without changing
the meaning of the principles.
Presentation
of the Circulars
Rather than
include the revised language in the three cost principles separately,
the team created a chart that allows side-by-side comparison of proposed
changes to the language contained in the current circulars. In addition,
the three circulars use different standard terminology to refer to "recipients"
and "awards;" the groups adopted conventions for the circulars
so they would all use the same standard terminology. The conventions are
as follows:
| Proposed
change language |
Existing
terms in A-21, A-87, and A-122 |
| "Non-Federal
entity" |
"Institution,"
"unit of government" and "organization" |
| "Federal
award" |
"Sponsored
agreement," "Federal award" and "Sponsored award" |
When the
cost principles are published in final form, OMB will use the new conventions
in the revised version. However, OMB plans to use the same words to describe
the units of organization, i.e., A-21 would still be divided into "sections"
and "subsections" while A-87 and A-122 would still use "paragraphs"
and "subparagraphs."
Clarity
of the Regulations
Executive
Order 12866, Regulatory Planning and Review, and the Presidential memorandum
on "Plain Language in Government Writing" require each agency
to write regulations that are easy to understand. OMB invites comments
on how to make these cost principles easier to understand, including answers
to questions such as the following:
- Are the
requirements in the proposed circulars clearly stated?
- Do the
cost principles contain technical terms or other wording that interferes
with their clarity?
- Would
the cost principles be easier to understand if divided into more (but
shorter) paragraphs or sections; or used the question and answer format?
- What
else would make the proposed circulars easier to understand?
To give commenters
an idea about how a circular might appear in plain language, the groups
provided at the end of the chart a plain language version of one cost
item to show how it would look in a different style of drafting.
Send any
comments that concern how we could make these proposed regulations easier
to understand to the person listed in the ADDRESSES section of the preamble.
If the comments generated by the plain language treatment indicate that
the circulars could be written using this convention, OMB will publish
any changes based on those comments for another round of comment.
Inadvertent
Changes in Policy
OMB has not
attempted to change the policy in any of the circulars. However, in the
effort to make the language more consistent, some unintended changes in
policy may have been made. OMB encourages comments on any proposed changes
that could be construed as changes to current policy.
Also, there
are places where different language in the current circulars for a particular
treatment could be viewed either as intending the same or intending different
policies. When faced with this ambiguity, in most cases, OMB has not attempted
to write a common treatment. However, OMB is interested in comments on
the extent to which some of these treatments could be viewed as expressing
the same policy in all three circulars.
Response
to Public Bodies and Cost Shifting
Where professional
bodies such as the Financial Accounting Standards Board (FASB) and the
Governmental Accounting Standards Board (GASB) have issued pronouncements
that contradicted existing circular provisions or otherwise clarified
"generally accepted accounting principles" (GAAP), the policy
of the professional bodies has been reflected in this draft.
Lastly, in
the process of reviewing the circulars for better consistency and clarity,
we concluded that this provided another opportunity to address an area
of much confusion concerning one of the general standards contained in
A-87, Attachment A, C.3., Allocable costs. In attempting to recognize
situations where two or more Federal programs might allow identical services
or assistance and served the identical population, an effort was made
to distinguish between 'funding allocations' vs. 'cost allocation'. Unfortunately,
this section was phrased in a manner that could be interpreted as allowing
cost shifting. Cost shifting has always been unallowable. The confusing
language has been eliminated in this Notice and no change in policy is
intended. The following reflects the proposed revision to OMB Circular
A-87, Attachment A, C.3.c., where the last sentence in brackets would
be deleted.
"Any
cost allocable to a particular Federal award or cost objective under the
principles provided for in this Circular may not be charged to other Federal
awards to overcome fund deficiencies, to avoid restrictions imposed by
law or terms of Federal awards, or for other reasons. [However, this prohibition
would not preclude governmental units from shifting costs that are allowable
under two or more awards in accordance with existing program agreements.]"
Organization
of the Chart
In the chart,
the first column lists the current A-21 item, the second column lists
the similar item, if any, from A-87, the third column lists the similar
item, if any, from A-122 and the fourth column lists any proposed change
to the item and which of the circulars would include the revised item.
In some cases one or more of the circulars do not have a cost item that
is included in one or more of the other circulars. If a circular does
not have an item equivalent to the other circulars, the column for that
circular is blank. Also, given the separate development of the three circulars,
some items contain more than one concept and some of those concepts are
stated in different places in the other circulars. In some cases, we have
moved a cost item in one circular to the place where that item appears
in the other circulars. In every case where one circular handles an item
in a different place than the others, we explain in the fourth column
where we propose to treat a particular concept in the three circulars.
How to
Obtain the Chart
Due to its
size, the chart is not printed in this Federal Register notice. It is
displayed on the OMB website at: http://www.omb.gov
under the "Grants Management/Current Documents" section. You
can also request a hard copy by calling Gilbert Tran at (202) 395-3052.
Mark W.
Everson
Controller
