Federal Register

Nonprofits Benefit From Federal Grant Reform

Posted on by & filed under Federal Grants, News.

Letter from the Executive Director …

This is extraordinary news:

Federal RegisterOn December 26, 2013, the White House Office of Management and Budget (OMB) released in the Federal Register its long-anticipated overhaul of federal grant policies. Charitable nonprofits achieved several important goals that will strengthen the great work you are doing in Nevada communities on behalf of governments and the nonprofit community as a whole.

Titled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” the 759-page final guidance will …

  1. Require state and local governments using federal funds to reimburse nonprofit contractors and grantees for reasonable indirect costs, sometimes called administrative or overhead expenses.
  2. Allow nonprofits to focus more on delivering services in their communities.
  3. Allow nonprofits to 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.

To put it simply, the days of our starvation cycle involving public funding are nearing an end. If you are, or will be, getting state or local funding that comes from the federal government (a.k.a. pass-through funding), you can opt for the new automatic indirect cost rate of 10%. Other changes include: eligible direct costs are expanded, audit rules are more favorable, and the burdensome applications and reports will be standardized and streamlined. That’s just for starters!

A nationwide study published December 5, 2013, by the Urban Institute found that governments arbitrarily limit indirect costs for necessary program and organizational expenses; one in four nonprofits (24 percent) reported that governments refuse to pay any indirect costs of the organization, and half (49 percent) reported that they were limited to 7 percent or less. This will no longer be tolerated when federal funds are involved.

Highlights from OMB 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.

As our National Council of Nonprofits points out:

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. This is a major win for the entire charitable nonprofit community.

The National Council of Nonprofits took the lead on this advocacy along with other state association leaders to advocate on a federal level on your behalf. They even published a Special Report on “Investing for Impact: Indirect Costs Are Essential for Success” that I highly recommend.  Your membership dues help us afford our dues to the National Council. Just another way to say that membership matters. It’s this power of association that gets us what we need – in order to really make a difference in our communities. I know when I get membership renewal letters, I do some quick mental math, asking, “What is the ‘value’ I’m getting here?” … “Is it worth it?”

Try this answer: If not for associations like the National Council and our 38 sister associations and allies across the country, this achievement would still be a dream. Alone, none of us could have made it happen. We truly need each other to succeed in making our world a better place. So yes, do the math and know that being part of something bigger then ourselves has real power to make a difference.

The Value of Membership

If you’re already a member of the Alliance for Nevada Nonprofits (ANN), thank you for your support!

If you are not yet a member, we want you on our team. Learn more about the benefits of membership here and here, and join online here.


Phil Johncock, ANN Executive Director