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New guidance offers nonprofits a break

So, you are a nonprofit organization that has been awarded federal money. Now what?

Many nonprofit agencies look to federal grants to expand their programs and facilities without tapping their donor and contribution bases. These awards can be an excellent source of additional income, but they come with extensive compliance and oversight rules from the Office of Management and Budget. To streamline the multiple sources of federal grant award guidance, the office issued its new Uniform Grant Guidance in June.

Many nonprofit organizations erroneously think the guidance doesn’t apply to them unless they are subject to an audit of their federal funds. But all nonprofit organizations receiving federal money are subject to the guidance; the audit of federal funds is one small part of the overall oversight from their granting agency and, ultimately, the Office of Management and Budget.

The new guidance requires internal controls over your grant funds even if your federal awards aren’t audited. Thus, you need checks and balances to ensure you use your federal dollars effectively and for their intended purpose. Typically, this means there is oversight and review at all levels of the organization — from program coordinator to executive director — over how and why federal awards are spent.

The guidance also has new documentation requirements for federal agencies and pass-through entities. Sometimes, a federal agency will make an award to a state or local government, which will make a subaward to a nonprofit organization. Because these subawards are often difficult to trace back to the original federal source, understanding compliance requirements can become nearly impossible for nonprofit subaward recipients.

The new guidance requires federal and pass-through agencies to supply minimum information for federal awards to help award receivers better understand compliance rules.

A change in the threshold for a single audit (the audit over your federal award expenditures combined with your financial statement audit) may also help smaller nonprofits. Under the new guidance, a single audit is required if you expend more than $750,000 in federal awards in a fiscal year. This threshold was $500,000 under the old Office of Management and Budget Circular A-133. The threshold relates to spending, not receipt of federal awards. So if you receive a federal grant for $1 million, but spend only $400,000 during your fiscal year, you would be exempt from a single audit and avoid a compliance audit.

I recommend you consult your certified public accountant to know if and when your federal grant awards will be subject to the new guidance. You may have some federal awards subject to the old Office of Management and Budget circulars and some subject to the new guidance. But all federal awards will likely fall under the new guidance eventually.

The guidance has too many changes and nuances to explain in one article. So, I encourage nonprofit leaders who have or are considering obtaining federal awards to read the guidance fully and work closely with their accountants to make sure they understand and comply.

Jessica Sayles is a principal with Houldsworth, Russo and Co., a local CPA firm. She is a UNLV graduate and has been with the firm for more than eight years.

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