Nonprofit Accounting Basics

OMB Circular A-110

What is OMB Circular A-110?

OMB Circular A-110 ("A-110") is officially named "Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations". This Circular sets forth standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations. This is the primary guidance that non-profit organizations must follow if they receive federal awards, including both grants and co-operative agreements.

Who is covered by A-110?

A-110 is applicable to all not-for-profit organizations, including universities. (However A-110 does not apply to state and local governments, which have their own circular (A-102).)

Importance of A-110?

A-110 standardized the administrative requirements that federal agencies can impose on award recipients. Further, compliance with A-110 is required for all award recipients and testing that compliance is a component of an A-133 audit.

How is A-110 organized?

A-110 is organized into 4 sections:

  1. General
  2. Pre-award
  3. Post-award
  4. After the award

General

This section provides definitions of the terms used in A-110. One key definition included in the circular is the official definition of a federal award:

(e) Award means financial assistance that provides support or stimulation to accomplish a public purpose. Awards include grants and other agreements in the form of money or property in lieu of money, by the Federal Government to an eligible recipient. The term does not include: technical assistance, which provides services instead of money; other assistance in the form of loans, loan guarantees, interest subsidies, or insurance; direct payments of any kind to individuals; and, contracts which are required to be entered into and administered under procurement laws and regulations.

Note that this definition differs from that in Circular A-133, which definition does include loans, loan guarantees, interest subsidies, and insurance as being subject to federal audit requirements.

Any type of assistance that meets the above definition is considered a federal award and therefore the recipient is subject to A-110.

Pre-Award

This section discusses the forms and instructions to be used in applying for federal awards.

Post-award:

This section describes the administrative procedures and policies that award recipients must follow once they have received the award. This section is the most crucial and significant for award recipients.

This section is further divided into the following sub-sections:

  • Financial and program management
  • Property standards
  • Procurement standards
  • Reports and records
  • Termination and enforcements

Financial and program management
The overriding principle of this section is that recipients' financial management systems shall provide for the following:

  • Accurate, current and complete disclosure of the financial results of each federally-sponsored project or program
  • Records that identify adequately the source and application of funds for federally-sponsored activities. These records shall contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, outlays, income and interest. This includes records to support all amounts claimed for cost-sharing or matching requirements.
  • Effective control over and accountability for all funds, property and other assets. Recipients shall adequately safeguard all such assets and assure they are used solely for authorized purposes.
  • Comparison of outlays with budget amounts for each award. Whenever appropriate, financial information should be related to performance and unit cost data.
  • Written procedures to minimize the time elapsing between the transfer of funds to the recipient from the U.S. Treasury and the issuance or redemption of checks, warrants or payments by other means for program purposes by the recipient. It is important to note that this requires a written policy.
  • Written procedures for determining the reasonableness, allocability and allowability of costs in accordance with the provisions of the applicable Federal cost principles (as set forth in Circulars A-21 for universities and A-122 for other nonprofits) and the terms and conditions of the award. It is important to note that this requires a written policy.
  • Accounting records including cost accounting records that are supported by source documentation.
  • Program income earned by the recipient during the award period is to be used in accordance with the award, either:
    • Added to funds committed to the project by the Federal awarding agency and recipient and used to further eligible project or program objectives. 
    • Used to finance the non-Federal share of the project or program.
    • Deducted from the total project or program allowable cost in determining the net allowable costs on which the Federal share of costs is based.
      • If the award does not stipulate the method for using program income, then the method described in paragraph 8c applies.

Property standards
This section sets forth uniform standards governing management and disposition of property furnished by the Federal Government any part of whose cost was charged to a project supported by a Federal award. This section also states that the recipient may use its own property management standards and procedures provided it observes the provisions this section.

Key elements of this section are:

  • Title to property and equipment shall be held by the recipient
  • The recipient shall request disposition instructions from the granting agency regarding the usage of real property after the conclusion of the award period.
  • Any equipment purchased with award funds shall be used for other-federally sponsored programs after the completion of the initial award.
  • Award recipients must maintain written records of property that includes:
    • A description of the equipment. 
    • Manufacturer's serial number, model number, Federal stock number, national stock number, or other identification number. 
    • Source of the equipment, including the award number. 
    • Whether title vests in the recipient or the Federal Government. 
    • Acquisition date (or date received, if the equipment was furnished by the Federal Government) and cost. 
    • Information from which one can calculate the percentage of Federal participation in the cost of the equipment (not applicable to equipment furnished by the Federal Government). 
    • Location and condition of the equipment and the date the information was reported.
    • Unit acquisition cost. 
    • Ultimate disposition data, including date of disposal and sales price or the method used to determine current fair market value where a recipient compensates the Federal awarding agency for its share.
  • Equipment owned by the Federal Government shall be identified to indicate Federal ownership. 
  • A physical inventory of equipment shall be taken every two years and reconciled with the property records.

Procurement standards
This section sets forth standards for use by recipients in establishing procedures for the procurement of supplies and other expendable property, equipment, real property and other services with Federal funds.

Key elements of this section are:

  • The recipient must have written procurement policies
  • These policies should help ensure that recipients avoid purchasing unnecessary items
  • The policy should include a lease/purchase analysis
  • The policy must include the process for preparing some form of cost or price analysis shall be made and documented in the procurement files in connection with every procurement action. Price analysis may be accomplished in various ways, including the comparison of price quotations submitted, market prices and similar indicia, together with discounts. Cost analysis is the review and evaluation of each element of cost to determine reasonableness, allocability and allowability.
  • Procurement records and files for purchases in excess of the small purchase threshold shall include the following at a minimum: (a) basis for contractor selection, (b) justification for lack of competition when competitive bids or offers are not obtained, and (c) basis for award cost or price.

Reports and records
This section sets forth the procedures for monitoring and reporting on the recipient's financial and program performance and the necessary standard reporting forms. They also set forth record retention requirements.

The key items in this section are:

  • that annual reports shall be due 90 calendar days after the grant year;
  • Quarterly or semi-annual reports shall be due 30 days after the reporting period.
  • The final performance reports are due 90 calendar days after the expiration or termination of the award.
  • Recipients are to file the SF-269 (Financial Status Report) and SF-272 (Report of Federal Cash Transactions)
  • Financial records, supporting documents, statistical records, and all other records pertinent to an award shall be retained for a period of three years from the date of submission of the final expenditure report or, for awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, as authorized by the Federal awarding agency.

After-the Award

This section discusses grant close-out procedures. The key element of this section is that the recipient shall submit, within 90 calendar days after the date of completion of the award, all financial, performance, and other reports as required by the terms and conditions of the award. The Federal awarding agency may approve extensions when requested by the recipient. (Note that deadline for submitting the A-133 audit reports is later.)