Nonprofit accounting regulatory and Uniform Guidance update November

Nonprofit accounting, regulatory and Uniform Guidance update November 14, 2018

Learning objectives 1 2 Identify current accounting standards in effect for notfor-profit organizations and what new or updated standards are on the horizon Recognize the impact the uniform guidance changes will have on nonprofit organizations as recipients of federal funding © Grant Thornton LLP. All rights reserved. 2

Agenda • • NFP Financial reporting project Revenue recognition Leases Uniform Guidance update ©

Presentation of financial statements and NFP entities

Key provisions of ASU 2016 -14 (Phase 1) Liquidity & Availability Quantitative & qualitative disclosures about liquidity and availability of resources Net Asset Classification Expenses Updated net asset classification scheme to two classes, changes to underwater endowment accounting, enhanced disclosures Requirement to report expenses by function (already required), nature, and an analysis showing the relationship between function and nature Statement of Cash Flows Investment Return Continue to allow direct or indirect method for operating cash flows; indirect reconciliation no longer required for direct method Present investment return net of external and direct internal investment expenses, no longer required to disclose netted expenses Phase 2 folded into Financial Performance Research project © Grant Thornton LLP. All rights reserved. 5

Net assets Current GAAP Unrestricted Revised GAAP Without donor restrictions* With donor restrictions* Amount, purpose, and type of board designations ** Nature and amount of donor restrictions Temp. restricted Perm restricted + Disclosures *NFPs may choose to disaggregate further **New disclosure requirement © Grant Thornton LLP. All rights reserved. 6

Implementation – Balance sheet Minimum presentation required Alternative disaggregation allowed © Grant Thornton LLP.

Implementation example: Balance sheet and net assets disclosure – United Way © Grant Thornton

Implementation example: Net assets disclosure – United Way © Grant Thornton LLP. All rights

Example disclosure – Net assets with donor restrictions © Grant Thornton LLP. All rights

Implementation – Statement of Activities example 1 © Grant Thornton LLP. All rights reserved.

Implementation – Statement of activities example 2 © Grant Thornton LLP. All rights reserved.

Implementation – Statement of activities example 3 GAAP still allows flexibility in presentation of NFP financials, examples in slide deck are not all inclusive © Grant Thornton LLP. All rights reserved. 13

Statement of cash flows – Operating Direct Method Indirect method © Grant Thornton LLP.

Example disclosures – Board designations Tabular disclosure or on face of balance sheet Text disclosure in notes Note 13 – Net assets without donor restrictions The Board of Directors of XYZ organization has several standing board policies that affect the presentation of board designations on net assets. Bequests without donor restrictions are designated for long-term investment (quasiendowment). The quasi-endowment fund balance totaled $35, 000 at December 31, 20 XX. Additionally, the Board of Directors has established an operating reserve with the objective of setting funds aside to be drawn upon in the event of financial distress or an immediate liquidity need. The operating reserve balance totaled $1, 300 at December 31, 20 XX © Grant Thornton LLP. All rights reserved. 15

"Underwater" endowments Revised net asset classification Enhanced disclosures • To be reflected in net assets with donor restrictions rather than in net assets without donor restrictions • In addition to aggregate amounts by which funds are underwater (current GAAP), also disclose aggregate of original gift amounts (or level required by donor or law) for such funds, fair value, and any governing board policy, or actions taken, concerning appropriation from such funds © Grant Thornton LLP. All rights reserved. 16

Polling question #1 How are any underwater funds associated with quasi-endowment funds reported under ASU 2016 -14 a. b. c. d. Such losses are reflected as part of temporarily restricted net assets We have no obligation to report the extent of underwater funds associated with quasi-endowment funds I am really not sure (haven't thought about it) Off balance sheet © Grant Thornton LLP. All rights reserved. 17

Endowment disclosure © Grant Thornton LLP. All rights reserved. 18

Example disclosures Underwater endowment funds with deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or the State Prudent Management of Institutional Funds Act requires NFP to retain as a fund of perpetual duration. Deficiencies of this nature exist in three donor-restricted endowment funds, which together have an original gift value of $14, 500, a current fair value of $13, 416, and a deficiency of $1, 084 as of December 31, 20 X 1. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new contributions for donor-restricted endowment funds and continued appropriation for certain programs that was deemed prudent by the Board of Directors. © Grant Thornton LLP. All rights reserved. 19

Expiration of capital restrictions • Gifts of PP&E or cash restricted for acquisition or construction of PP&E • In absence of explicit donor restrictions, NFPs would be required to use the placed-in-service approach (no more implied time restrictions) • Healthcare NFPs are already required to do so © Grant Thornton LLP. All rights reserved. 20

Examples of reclassification of opening balances © Grant Thornton LLP. All rights reserved. 21

Liquidity and availability of resources Qualitative information on how an NFP manages its liquid available resources and its liquidity risk (in the notes) NFPs required to provide: Quantitative information that communicates the availability of an NFP's financial assets at the balance sheet date to meet cash needs for general expenditures within one year (on the face and/or in the notes) © Grant Thornton LLP. All rights reserved. 22

Example liquidity disclosures Note 5 – Information about liquidity The organization has an operating reserve that had a balance of $2. 7 million and $2. 8 million at June 30, 2015 and 2014, respectively. This is a governing board-designated reserve with the objective of setting funds aside to be drawn upon in the event of financial distress or an immediate liquidity need resulting from events outside the typical life cycle of converting financial assets to cash or settling financial liabilities. The Organization's target for this reserve is a total of $3. 0 million, which was determined based on management's judgement about the appropriate amount of funds to have set aside in addition to working capital. The operating reserve funds are held in lower-risk cash and fixed-income securities. The operating reserve balance is included in the cash and cash equivalents and investments lines on the statement of financial position (2015 - $1. 21 M in cash and cash equivalents and $1. 74 M in investments; 2014 - $1. 26 M in cash and cash equivalents and $1. 70 M in investments). In the event of an unanticipated liquidity need, the Organization also could draw upon $2, 500, 000 of an available line of credit (As further discussed in Note 8). © Grant Thornton LLP. All rights reserved. 23

Example availability disclosure © Grant Thornton LLP. All rights reserved. 24

Example of combined disclosure © Grant Thornton LLP. All rights reserved. 25

Example – NFP with deficiency in the composition of assets to comply with donor-imposed restrictions *Donations restricted for purposes more limited than general expenditures total $3, 750 Codification references: 958 -210 -50 -2 An NFP shall disclose the following, if applicable, in the notes to the financial statements and may include that information in qualitative disclosures on the availability of an NFP’s financial assets in accordance with paragraph 958 -210 -50 -1 A(b): b. The fact that the NFP has not maintained appropriate amounts of cash and cash equivalents to comply with donor-imposed restrictions (see paragraph 958 -450 -50 -3) 958 -450 -50 -3 If the noncompliance results from a not-for-profit entity’s (NFP’s) failure to maintain an appropriate composition of assets in amounts needed to comply with all donor restrictions, the amounts and circumstances shall be disclosed. © Grant Thornton LLP. All rights reserved. 26

Expense reporting Report expenses, either on the face of financial statements or in the notes, by: Analysis (disaggregate function by nature) Function* *currently required by GAAP Natural Classification © Grant Thornton LLP. All rights reserved. 27

Reporting of expenses Analysis of operating expenses by nature and function one place in the F/S (statement of activities, separate statement, or schedule in notes), with additional qualitative information about cost allocations Functionalization is optional Function Program activities Program A Program B Supporting activities M&G Fundraising Total Operating Expenses Non. Operating Total Expenses Salaries & Benefits N A T U R E Grants to Others Equipment Rental & Maintenance Occupancy Cost Depreciation Information Technology Professional Service Fees Supplies Travel Printing & Publication Interest Other TOTAL Either nature or function (or both) on face of Statement of Activities © Grant Thornton LLP. All rights reserved. 28

Example 1 – Analysis of expenses Presentation in the notes or in a separate

Example 2 – Analysis of expenses Presentation on face of statement of activities ©

Polling question #2 Under ASU 2016 -14, which of the following options are allowable for an organization to present its expenses by both function and nature? a. They must be reported as a primary financial statement b. They may be reported as a footnote, a supplemental schedule or a primary financial statement c. They may be presented as a footnote, on the face of the statement of activities or a primary financial statement d. Best presented in a supplemental schedule to the financial statements © Grant Thornton LLP. All rights reserved. 31

Reporting of investment return • How to present? Net presentation of investment expenses against investment return on the face of the statement of activities • Netting limited to external and direct internal expenses • May report net return in multiple, appropriately labeled lines (e. g. , from different portfolios, in different net asset classes, or in operating versus nonoperating • What to disclose? • Disclosure of investment expenses no longer required • If reported, carefully label and don't include in expense analysis No longer require disclosure of investment return components © Grant Thornton LLP. All rights reserved. 32

Netting of investment expenses Which of the following expenses are allowed to be netted with investment performance for the reporting period under the new ASU? (Yes or No) • Printing and copying costs associated with preparing investment performance presentations to be provided to the Investment Committee of the Board for strategic decision making - YES • Investment team time incurred to reconcile each monthly manager investment statement to the custodian report and then to the general ledger NO • Investment team time incurred summarizing daily investment performance from Bloomberg and other notable pricing systems/sources and organizing data on a spreadsheet which is shared with the Investment Committee of the Board to aid in decision making -YES • Costs associated with the Chief Investment Officer (CIO) and staff responsible for the development and execution of the investment strategy YES • Costs associated with the unitization and other aspects of endowment management/reporting - NO • Costs associated with internal investment management and supervising, selecting and monitoring of external investment firms -YES • Custodian fees - YES • Management fees - YES • Travel, lodging and meal expenses of the CIO to visit and meet with fund managers - YES • The cost of background reports incurred on individual fund principals and members of senior investment management -YES • Preparation of IRS form 990 T for certain alternative investment funds - NO © Grant Thornton LLP. All rights reserved. 33

Implementation example ASU adoption disclosure – United Way © Grant Thornton LLP. All rights

Effective date and implementation • In year of transition: • If implementation causes material changes to the financials, then: • Include “change in accounting principle” footnote • Include emphasis-of-matter paragraph in auditor’s report • If present comparative financials for the prior year, retroactively apply all of the new ASU provisions to the prior year, except can choose not to present the following for the prior year: • Analysis of expenses by nature an function (unless already required to do so under current GAAP), and/or • Disclosures about liquidity and availability of financial assets • Effective now – CY 2018, FY 2019 © Grant Thornton LLP. All rights reserved. 35

Leases

ASU 2016 -02: Leases (Topic 842) Lessee accounting overview Balance Sheet Income Statement Cash Flow Statement Finance (“Type A”) Right-of-use (ROU) asset lease liability Amortization expense Interest expense Cash paid for principal and interest payments Operating (“Type B”) Right-of-use (ROU) asset lease liability Single lease expense on a straight-line basis Cash paid for lease payments Classification is similar to that in Topic 840 Leases Recognition and measurement exemption for short-term leases Other than public business entities may use risk-free rates for measurement of all lease liabilities © Grant Thornton LLP. All rights reserved. 37

Identifying a lease (The new primary determinant for on/off balance sheet treatment) That is explicitly or implicitly specified An identified asset Supplier has no practical ability to substitute and would not economically benefit from substituting the asset Lease contracts in the scope of Topic 842 involve The right to control the use during the lease term Decision-making authority over the use of the asset The ability to obtain substantially all economic benefits from the use of the asset © Grant Thornton LLP. All rights reserved. 38

Lessor accounting review Balance Sheet Type A Lease Type B Lease Income Statement Cash Flow Statement Net investment in the lease Interest income and any profit on the lease Cash received for lease payments Continuing to recognize underlying asset Lease income, typically on a straight-line basis Cash received for lease payments © Grant Thornton LLP. All rights reserved. 39

Leases – effective date Public companies* • Fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (CY 2019; FY 2019 -20) All other organizations * “Public Companies” refers to the following: (1) public business entities; (2) a not-for-profit entity that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and (3) an employee benefit plan that files or furnishes statements with or to the SEC (Same effective date as revenue recognition standard) • Fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020 (CT 2020; FY 2020 -21) Early application • Permitted for all organizations © Grant Thornton LLP. All rights reserved. 40

Polling question #3 How significant do you anticipate the effort to prepare for the lease standard at your organization will be? a. We're not sure… haven't begun to look at it b. Anticipating it to have a moderate impact… still evaluating c. Very significant… can you help? d. Minimal… we don't have many leases e. Not applicable © Grant Thornton LLP. All rights reserved. 41

Revenue recognition

Revenue from contracts with customers (Topic 606) Objective: To develop a single, principle-based revenue standard for generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) The revenue standard aims to improve accounting for contracts with customers by: • Providing a robust framework for addressing revenue issues as they arise • Increasing comparability across industries and capital markets • Requiring better disclosure Substantially converged with IFRS on major provisions © Grant Thornton LLP. All rights reserved. 43

Revenue recognition – Scope • • • All contracts with • • customers, except Lease contracts Insurance contracts Financial instruments Guarantees Nonmonetary exchanges in the same line of business to facilitate sales to customers • Contributions Contracts not with • Collaborative arrangements customers are excluded: © Grant Thornton LLP. All rights reserved. 44

Revenue recognition – Model Core Principle: Recognize revenue to depict the transfer or promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services Steps to apply the core principle: 1. Identify contract(s) with the customer 2. Identify performance obligations 3. Determine transaction price 4. Allocate transaction price 5. Recognize revenue when (or as) a performance obligation is satisfied © Grant Thornton LLP. All rights reserved. 45

Revenue recognition – Disclosures Disaggregation of revenue • Qualitative and quantitative* disaggregation of revenue into categories that depict how revenue and cash flows are affected by economic factors Information about contract balances • Opening and closing balances * • Amount of revenue recognized from contract liabilities * • Explanation of significant changes in contract balances * Remaining performance obligations • Transaction price allocated to remaining performance obligations * • Quantitative or qualitative explanation of when amounts will be recognized as revenue * Interim requirements • Quantitative disclosures * * for public entities only © Grant Thornton LLP. All rights reserved. 46

FASB recent standard setting (Following discussions with TRG) Identifying performance obligations and licensing 1 • Performance Obligations • Distinct in the context of the contract • Immaterial promises • Shipping and handling • Licensing • Nature of license over time versus point in time • Scope of constraint on sales based and usagebased royalties Principal versus agent (reporting revenue gross versus net)2 • Control principle: to provide (principal) versus to arrange (agent) • Unit of account • Control principle in the context of services • Control indicators • Illustrative examples Narrow-scope improvement and practical expedients 3 • Narrow scope investments • Noncash consideration • Collectibility • Completed contracts at transition • Practical expedients • Contract modifications at transition • Sales tax presentation (net) 1 ASU No. 2016 -10, Revenue from Contracts with Customers (Topic 606) (issued April 2016) No. 2016 -08, Revenue from Contracts with Customers (Topic 606) (issued March 2016) 3 ASU No. 2016 -12, Revenue from Contracts with Customers (Topic 606) (issued May 2016) Also: ASU No. 2016 -20 Technical Corrections and Improvements to Topic 606 (issued Dec. 2016) 2 ASU © Grant Thornton LLP. All rights reserved. 47

Revenue recognition – Effective dates CY 2018 (FY 2018 -19) for public entities* (including interim) CY 2019 (FY 2019 -20) for nonpublic entities (no interim, just annual period; interims in subsequent years) Early adoption permitted, but not before original effective date *Public entities include NFPs with publicly traded conduit (or direct) debt © Grant Thornton LLP. All rights reserved. 48

Revenue recognition of grants and contracts by NFP entities

Scope • Applies to all entities (NFPs and business entities) that receive or make contributions unless otherwise indicated • Excludes transfers of assets from the government to business entities • Applies to both contributions received by a recipient and contributions made by a resource provider. The intent is simply that both apply the same guidance, the entities do not need to track each other's accounting to achieve the same reporting results. • The term used in the presentation of financial statements to label revenue (for example, contribution, grant, donation) that is accounted for within the Scope of Subtopic 958 -605 is not a factor for determining whether an agreement is within the scope of that guidance. © Grant Thornton LLP. All rights reserved. 50

Issue 1: Reciprocal (exchange) vs. nonreciprocal (nonexchange/contribution) transactions Who Receives the Benefit? © Grant

Issue 1: Reciprocal vs nonreciprocal transactions: Key clarifications to the scope of Subtopic 958 -605 The final ASU will clarify and refine existing guidance in Subtopic 958 -605 by adding paragraphs that would clarify the scope of the Subtopic as well as illustrative examples • The resource provider is not synonymous with the general public, even a governmental entity. If a resource provider receives value indirectly by providing a societal benefit, this would be considered a nonreciprocal transaction. • If the primary beneficiary of a grant or contract is a third party, an NFP must use judgement to determine if the transaction is reciprocal or nonreciprocal. • Furthering a resource provider's mission or "feel good" sentiment does not constitute commensurate value received. • The type of resource provider should not override the substance of the transaction © Grant Thornton LLP. All rights reserved. 52

Issue 2: conditional vs. unconditional contributions For a Donor-Imposed Condition to Exist: Final ASU - A right of return/release must exist; and - The agreement must include a barrier - Indicators and examples to help in determination Alternative Rejected - A right of return/release must exist - Would have required a probability assessment about whether it is likely a recipient NFP will fulfill the stipulations © Grant Thornton LLP. All rights reserved. 53

Indicators to determine a barrier To determine what is a barrier, an NFP will consider indicators, which will include, but are not limited to, the following: The inclusion of a measurable performance-related barrier or other measurable barrier. The extent to which a stipulation limits discretion by the recipient on the conduct of an activity. The extent to which a stipulation is related to the purpose of the agreement. The Board decided to remove the additional actions indicator that was original proposed *During redeliberations, the Board decided to make additional clarifications to each indicator © Grant Thornton LLP. All rights reserved. 54

NFP revenue recognition decision process © Grant Thornton LLP. All rights reserved. 55

Polling question #4 Which of the following need to be present in order for an arrangement to be considered conditional? a. A right of return/release b. A barrier c. A right of return/release AND a barrier d. A requirement to have an annual audit performed © Grant Thornton LLP. All rights reserved. 56

Transition approach Effective Date • A B • Existing Agreements New agreements • Modified Prospective • Apply to all agreements: • Existing at the effective date (only apply to the portion of existing agreements not previously recognized) • Entered into after the effective date No restatement of prior amounts recognized Retrospective Application Permitted © Grant Thornton LLP. All rights reserved. 57

Effective date Recipients* Annual periods beginning after June 15, 2018, including interim periods: • • Annual periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019: Public Business Entities NFP that has issued, • or is a conduit bond obligor for securities that are traded, listed, or quoted on exchange or an over -the-counter market. Resource Providers Annual periods beginning after December 15, 2018, including interim periods: • All Other Entities • Annual periods beginning after December 15, 2019, and interim periods beginning after December 15, 2020: Public Business Entities • NFP that has issued, or is a conduit bond obligor for securities that are traded, listed, or quoted on exchange or an over -the-counter market. *The standard will allow for early implementation. All Other Entities © Grant Thornton LLP. All rights reserved. 58

Example #1: Grant from Federal government • University D is awarded a grant from the federal government. • The agreement requires University D to: • • Follow the rules and regulations established by the Office of Management and Budget (OMB) Incur certain expenses (or costs) in compliance with rules and regulations established by the OMB and the federal awarding agency Obtain an annual audit in accordance with OMB guidelines Submit a summary of research findings to the federal government • Any unused assets are forfeited, and any unallowed costs that have been drawn down by University D are required to be refunded. • University D retains the rights to the findings. • Is this transaction exchange or nonexchange? If nonexchange, is it conditional or unconditional? © Grant Thornton LLP. All rights reserved. 59

Example 1: Conclusion • University D concludes this is a nonexchange transaction (nonreciprocal). • Explanation: • Commensurate value is not being exchanged between the two parties • University D retains all the rights to the research and findings and received the primary benefit of the findings • The federal government’s benefit is considered indirect because the research and findings serve the general public. © Grant Thornton LLP. All rights reserved. 60

Example #1: Conclusion, continued • University D determines that it should account for this grant as conditional. • Explanation: • The grant agreement limits University D’s discretion as a result of the specific requirements on how the assets may be spent (qualifying expenses) • There is a right of return and release • The audit requirement alone is not a barrier to entitlement because it is not related to the purpose of the agreement © Grant Thornton LLP. All rights reserved. 61

Example #2: Grant from local government • NFP C receives funding from the local government to perform a research study on the benefits of a longer school year. • The agreement requires NFP C to: • Plan the study • Perform the research • Summarize and submit the research to the local government • The local government retains all rights to the study. © Grant Thornton LLP. All rights reserved. 62

Example #2: Conclusion • NFP C concludes this is an exchange (reciprocal) transaction. • Explanation: • Commensurate value is exchanged between the two parties • The local government retains the rights to the study © Grant Thornton LLP. All rights reserved. 63

Example #3: Grant from a private foundation • NFP B receives a grant from a private foundation for funding in the amount of $400, 000 to provide specific career training to disabled veterans. • The grant requires NFP B to provide training to at least 8, 000 disabled veterans during the next fiscal year, with specific minimum targets that must be met each quarter. • There is a right of release from the obligation in the agreement. • Is this transaction exchange or nonexchange? If nonexchange, is it conditional or unconditional? © Grant Thornton LLP. All rights reserved. 64

Example #3: Conclusion • NFP B determines that it should account for this grant as non-exchange and conditional. • Explanation: • The foundation does not receive commensurate value in return • The agreement contains a right of release from obligation • The foundation requires NFP B to achieve a specific level of service that would be considered a measurable performance-related barrier © Grant Thornton LLP. All rights reserved. 65

Uniform guidance update

Procurement

Single audit – Procurement effective date reminder • Grace period option delayed applicability of UG sections 200. 317 to 200. 326 • Three full fiscal years after December 26, 2014 • December 31 st year ends – go live 1/1/2018 • June 30 th year ends - go live 7/1/2018 • September 30 th year ends - go live 10/1/2018 • Must document decision in internal procurement policy – update for grace period extension • OMB has indicated it is expected this will be the final grace period © Grant Thornton LLP. All rights reserved. 69

What do UG procurement requirements apply to? Goods and services charged to: nonfederal program

UG procurement standards Written Procedures Competition Methods of procurement Procurement Records Conflicts of interest Contract price 200. 318 Adequate oversight © Grant Thornton LLP. All rights reserved. 71

UG procurement methods Method Micro-purchase Dollar Threshold Not to exceed micro-purchase threshold (a figure than changes from time to time) Small purchase procedure Greater than micro-purchase, not to exceed the Simplified Acquisition Threshold (a figure that changes from time to time) Sealed bid Greater than the Simplified Acquisition Threshold Competitive proposal Greater than the Simplified Acquisition Threshold Noncompetitive proposal Greater than micro-purchase threshold © Grant Thornton LLP. All rights reserved. 72

National Defense Authorization Act as summarized by the Office of Management and Budget NDAA 2017 NDAA 2018 (PL 114 -328, Section 217(b)) (PL 115 -91, Sections 805 and 806) • Raises micro-purchase threshold to $10, 000 for certain recipients only: • • • IHEs, or related or affiliated nonprofits Nonprofit research orgs Independent research institutes • Applies to ALL Federal awards • Effective December 23, 2016 • Can receive a higher level by request to the cognizant agency for indirect costs if: • • • Low risk auditee, or Internal institutional risk assessment, or Consistent with state law for public orgs • Raises micro-purchase threshold to $10, 000 and simplified acquisition threshold to $250, 000 for procurements under the FAR • Applies to All Federal awards and All recipients • Effective for procurements when FAR is updated • OMB granting an exception to the UG to allow use for Federal awards effective upon release date of OMB memo: • • 2 CFR 200. 67 Micro-purchase 2 CFR 200. 88 Simplified Acquisition Threshold • No provision for higher threshold for All recipients • Agencies to implement a process for approval © Grant Thornton LLP. All rights reserved. 73

2018 OMB Compliance Supplement, Appendix VII-A NDAA Addendum 2017 NDAA – auditors not expected to write findings for covered entities that implemented increased micro-purchase thresholds after December 23, 2016, as long as entity documented decision • covered entities include entities of higher education, or related nonprofit entities, nonprofit research organizations or independent research institutes 2018 NDAA- since it will not be effective until codified in the FAR, audit findings are expected for other entities that adopted the increased micro-purchase and simplified acquisition thresholds before the codification date © Grant Thornton LLP. All rights reserved. 74

The latest…. . OMB M-18 -18 • • OMB M-18 -18 Implementing Statutory Changes to the Micro-Purchase and Simplified Acquisition Thresholds for Financial Assistance issued on June 20, 2018 An interim step before the FAR is updated Implements the effect of the NDAA of 2017 and 2018 on the procurement micro-purchase and simplified acquisition thresholds Addresses the timing of the threshold changes and grants a specific exception allowing recipients of existing federal financial assistance to implement the threshold changes as described in the memorandum 2017 NDAA • affirms 12/23/16 effective date, applicability to higher education and research communities • establishes a process for covered entities to request an even higher micro purchase threshold 2018 NDAA – • states that increases to the micro-purchase threshold to $10, 000 and the simplified acquisition threshold to $250, 000, for all recipients, are effective upon the issuance of the OMB memorandum (the date appearing on the memorandum is June 20, 2018) • recipients who adopt these changes must document their decision © Grant Thornton LLP. All rights reserved. 75

Reporting

Corrective Action Plan 2 CFR 200. 511 (c) • Must address each audit finding , both federal awards and GAGAS findings re. the financial statements • Must be in a document separate from the auditor's finding • • FAQ. 511 -1 "the auditee must submit the correction action plan on auditee letterhead" Must provide: • Names of contact person(s) responsible for correction action • Corrective action planned • Anticipated completion date © Grant Thornton LLP. All rights reserved. 77

Polling question #6 It is acceptable for auditees to address the requirement of a Corrective Action Plan by having their auditor report the auditee response under Views of Responsible Officials in the audit finding a. True b. False © Grant Thornton LLP. All rights reserved. 78

Other updates

Single audit – SFA cluster developments ED issued an updated FSA memorandum stating that institutions participating in Title IV programs that submit a single audit that does not include the SFA cluster as a major program will no longer be required to notify their respective School Participation Division of the low-risk assessments. • The previous procedure in place had required an approval from School Participation Division if SFA cluster would not be audited as major. 2018 OMB Compliance Supplement will not include the new audit objectives and steps around “securing student information” that ED has been contemplating adding. • Education has confirmed it will not include this topic until the 2019 Supplement © Grant Thornton LLP. All rights reserved. 80

Update on federal FAQs on the UG FAQs are now posted to CFO. gov

Single audit – FAC developments Nothing new for 2018 audits • However, remember reporting packages, including your reports and findings are posted publicly! Proposed new DCF for use in 2019, 2020, and 2021 audits was recently out for comment Next DCF likely to require text of audit findings, corrective action plan, and SEFA notes © Grant Thornton LLP. All rights reserved. 82