Nonprofit Accounting Basics

Introduction to OMB Circular A-133


John Meriscko

National Association of County and City Health Officials

The A-133 compliance supplementi describes 14 types of compliance requirements and related audit objectives and procedures to be considered in performing audits subject to Circular A-133. The 14 compliance requirements are as follows:

A. Activities allowed or unallowed: provides guidance on activities that can or cannot be funded under a specific program.

B. Allowable costs/cost principles: describes the cost accounting requirements associated with federal awards. These include OMB Circular A-21, "Cost Principles for Educational Institutions;" Circular A-87, "Cost Principles for State, Local, and Indian Tribal Governments;" Circular A-122, "Cost Principles for Nonprofit Organizations;" and HHS CFR Title 45, Part 74, Appendix E, "Hospital Cost Principles for R&D."

C. Cash management: requires the adoption of procedures to minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by the grantee. It applies only to grants with advance payments, but not to cost-reimbursement grants.

D. Davis-Bacon Act: requires that wages for "laborers and mechanics" employed by contractors (including subcontractors) of federally-funded projects be paid in accordance with the prevailing local wage established by the Secretary of Labor.

E. Eligibility: specifies the criteria for determining the individuals, groups of individuals, or subrecipients that can participate in the program and the amounts of assistance for which they qualify.

F. Equipment and real property management: provides standards for the use and disposition of equipment and real property purchased with federal funds. These requirements cover records and inventory management.

G. Matching, level of effort, and earmarking: requires the auditor to determine whether the minimum amount (or percentage) of grantee contributions or matching funds was provided, specified service or expenditure levels were maintained, and minimum or maximum limits for specified purposes were met.

H. Period of availability of federal funds: requires that only those costs resulting from obligations incurred during the funding period for a federal award may be charged to the award (unless otherwise permitted by the specific grant).

I. Procurement and suspension and debarment: prohibits recipients of federal awards from contracting with parties that have been suspended or debarred by a federal agency.

J. Program income: requires that income generated from a federal program be recorded correctly and used as a deduction from outlays, as an addition to the project budget, or to meet matching requirements.

K. Real property acquisition and relocation assistance: requires that people displaced from their homes, businesses, or farms by a federal program be treated equitably and in accordance with the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970.

L. Reporting: requires the use of standard financial and other reporting forms authorized by the OMB or the awarding agency and establishes due dates for report submission.

M. Subrecipient monitoring: requires entities to monitor the activities of subrecipients relative to their federal awards to ensure compliance with requirements of the awards.

N. Special tests and provisions: requires the consideration of special provisions related to each federal program, if any, as required by the terms of the award.

In addition to providing audit objectives and procedures for these 14 types of compliance requirements, the supplement also includes a description of the applicability of these requirements to each federal program covered by Circular A-133; internal control guidance to assist management in designing appropriate controls and to assist auditors in understanding, evaluating, and testing them; and guidance for auditing certain cluster programs and other programs not specifically covered by the supplement. (A cluster program is a grouping of closely-related programs that share common compliance requirements.)

i The Compliance Supplement has various sections.  Part 3 is the Compliance Requirements section.