This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

11778 

Vol. 77, No. 39 

Tuesday, February 28, 2012 

OFFICE OF MANAGEMENT AND 

BUDGET 

2 CFR Chapters I and II 

Reform of Federal Policies Relating to 

Grants and Cooperative Agreements; 

Cost Principles and Administrative 

Requirements (Including Single Audit 

Act) 

AGENCY: Executive Office of the 

President, Office of Management and 

Budget (OMB). 

ACTION: Advance Notice of Proposed 

Guidance. 

SUMMARY: In his November 23, 2009, 

Executive Order 13520 on Reducing 

Improper Payments and his February 

28, 2011, Presidential Memorandum on 

Administrative Flexibility, Lower Costs, 

and Better Results for State, Local, and 

Tribal Governments, the President 

directed the Office of Management and 

Budget (OMB) to work with Executive 

Branch agencies; state, local, and tribal 

governments; and other key 

stakeholders to evaluate potential 

reforms to Federal grants policies. 

Consistent with the Administration’s 

commitment to increasing the 

effectiveness and efficiency of Federal 

programs, the reform effort seeks to 

strengthen the oversight of Federal grant 

dollars by aligning existing 

administrative requirements to better 

address ongoing and emerging risks to 

program outcomes and integrity. The 

reform effort further seeks to increase 

efficiency and effectiveness of grant 

programs by eliminating unnecessary 

and duplicative requirements. Through 

close and sustained collaboration with 

Federal and non-Federal partners, OMB 

has developed a series of reform ideas 

that would standardize information 

collections across agencies, adopt a riskbased model for Single Audits, and 

provide new administrative approaches 

for determining and monitoring the 

allocation of Federal funds. 

DATES: To be assured of consideration, 

comments must be received by OMB at 

one of the addresses provided below, no 

later than 5 p.m. Eastern Standard Time 

(E.S.T) on March 29, 2012. 

ADDRESSES: In submitting comments, 

please refer to file ‘‘Grant Reform’’. You 

may submit comments using one of the 

following three alternatives (please 

choose only one of these three 

alternatives): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘more Search 

Options’’ tab. 

2. By express or overnight mail. You 

may send written comments to the 

following address only: Office of 

Management and Budget, 725 17th St. 

NW., Washington, DC 20025, Attention: 

Office of Federal Financial Management 

‘‘Grant Reform’’. 

3. By regular mail. You may mail 

written comments to the following 

address only: Office of Management and 

Budget, 725 17th St. NW., Washington 

DC, 20500, Attention: Office of Federal 

Financial Management ‘‘Grant Reform’’. 

Due to potential delays in OMB’s receipt 

and processing of mail sent through the 

U.S. Postal Service, we strongly 

encourage respondents to submit 

comments electronically to ensure 

timely receipt. We cannot guarantee that 

comments sent via surface mail will be 

received before the comment closing 

date. 

Comments will be most useful if they 

are presented in the same sequence (and 

with the same heading) as the section of 

this notice to which they apply. Also, if 

you are submitting comments on behalf 

of an organization, please identify the 

organization. Finally, the public 

comments received by OMB will be 

posted on OMB’s Web site and at 

http://www.regulations.gov (follow the 

search instructions on that Web site to 

view public comments). Accordingly, 

please do not include in your comments 

any confidential business information or 

information of a personal-privacy 

nature. 

Copies of the OMB Circulars that are 

discussed in this notice are available on 

OMB’s Web site at http:// 

www.whitehouse.gov/omb/ 

circulars_default/. The Cost Principles 

for Hospitals are in the regulations of 

the Department of Health and Human 

Services at 45 CFR part 75, Appendix E 

(Principles for Determining Costs 

Applicable to Research and 

Development Under Grants and 

Contracts with Hospitals), at http:// 

www.gpo.gov/fdsys/pkg/CFR–2011- 

title45-vol1/pdf/CFR–2011-title45- 

vol1.pdf. 

FOR FURTHER INFORMATION CONTACT: 

Victoria Collin at (202) 395–7791 for 

general information. 

SUPPLEMENTARY INFORMATION: This 

advance notice outlines the reform ideas 

for which OMB seeks public comment. 

These comments will assist OMB in its 

development in the coming months of a 

further Federal Register notice, to be 

published for comment later this year, 

which would propose specific revisions 

to existing requirements. These reform 

ideas relate to, and could result in 

proposed revisions to the following 

government-wide issuances: OMB 

Circulars A–21, A–87, A–110, and A– 

122 (which have been placed in 2 CFR 

parts 220, 225, 215, and 230); Circulars 

A–89, A–102, and A–133; the guidance 

in Circular A–50 on Single Audit Act 

follow-up; and the Cost Principles for 

Hospitals at 45 CFR Part 74, Appendix 

E. As part of this ongoing review, OMB 

will consider the consolidation of 

currently-separate guidelines addressing 

related topics as well as the continued 

integration of guidelines into title 2 of 

the Code of Federal Regulations. 

The reform ideas would be applicable 

to grants and cooperative agreements 

that involve state, local, and tribal 

governments as well as universities and 

nonprofit organizations. To the extent 

that current OMB circulars on cost 

principles cover all awards including 

contracts for these entities, reforms to 

cost principles will equally apply to all 

Federal awards including contracts, 

except for those contracts that that are 

subject to ‘‘full coverage’’ under the Cost 

Accounting Standards (CAS) as defined 

at 48 CFR 9903.201. CAS-covered 

contracts will continue to be subject to 

the relevant requirements under the 

Federal Acquisition Regulation (FAR). 

Single Audit Act requirements will 

continue to apply to all Federal awards 

including contracts, though cost 

reimbursement contracts may continue 

to be subject to additional audit 

requirements. 

I. Objectives and Background 

A. Objectives 

As the President made clear in 

Executive Order 13563 of January 18, 

2011, on Improving Regulation and 

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Regulatory Review (76 FR 3821; January 

21, 2011; http://www.gpo.gov/fdsys/pkg/ 

FR-2011-01-21/pdf/2011-1385.pdf), each 

Federal agency must ‘‘tailor its 

regulations to impose the least burden 

on society, consistent with obtaining 

regulatory objectives, taking into 

account, among other things, and to the 

extent practicable, the costs of 

cumulative regulations’’ and, to that 

end, it is important that Federal 

agencies identify those ‘‘rules that may 

be outmoded, ineffective, insufficient, 

or excessively burdensome,’’ and 

‘‘modify, streamline, expand, or repeal 

them in accordance with what has been 

learned.’’ The President reinforced his 

commitment in Executive Order 13579 

of July 11, 2011 on Regulation and 

Independent Regulatory Agencies (76 

FR 41587; July 14, 2011; http:// 

www.gpo.gov/fdsys/pkg/FR-2011-07-14/ 

pdf/2011-17953.pdf). 

As in other areas involving Federal 

requirements, the President is 

committed to eliminating requirements 

in the financial assistance arena that are 

unnecessary and reforming those 

requirements that are overly 

burdensome. As part of this 

commitment, the President believes that 

the Federal government has an 

obligation to eliminate roadblocks to 

effective performance in carrying out 

and completing grants and cooperative 

agreements. Essential to this reform 

effort is reducing ‘‘red tape’’ that is 

attached to the more than $600 billion 

the Federal government spends 

annually in the form of grants and 

cooperative agreements. These awards 

provide important benefits and services 

to the public, and the awards go to state, 

local and tribal governments as well as 

to institutions of higher education and 

non-profit organizations. In order to 

ensure that the public receives the most 

value for the tax dollars spent, it is 

essential that these programs function as 

effectively and efficiently as possible, 

and that there be a high level of 

accountability to prevent waste, fraud, 

and abuse. 

To this end, the President on February 

28, 2011, issued his Memorandum on 

Administrative Flexibility, Lower Costs, 

and Better Results for State, Local, and 

Tribal Governments, (Daily Comp. Pres. 

Docs.; http://www.gpo.gov/fdsys/pkg/ 

DCPD-201100123/pdf/DCPD201100123.pdf). In the Memorandum, 

the President explained that ‘‘Federal 

program requirements over the past 

several decades have sometimes been 

onerous, and they have not always 

contributed to better outcomes. With 

input from our State, local, and tribal 

partners, we can, consistent with law, 

reduce unnecessary regulatory and 

administrative burdens and redirect 

resources to services that are essential to 

achieving better outcomes at lower 

cost.’’ In addition to other actions, the 

President instructed the OMB Director 

to ‘‘[r]eview and where appropriate 

revise guidance concerning cost 

principles, burden minimizations, and 

audits for State, local, and tribal 

governments in order to eliminate, to 

the extent permitted by law, 

unnecessary, unduly burdensome, 

duplicative, or low-priority 

recordkeeping requirements and 

effectively tie such requirements to 

achievement of outcomes.’’ 

At the same time that the Federal 

Government must remove unnecessary 

and overly burdensome requirements 

that interfere with efficient and effective 

program performance, another 

Presidential priority is ‘‘intensifying 

efforts to eliminate payment error, 

waste, fraud, and abuse’’ in Federal 

programs, as the President emphasized 

in Executive Order 13520 of November 

20, 2009, on Reducing Improper 

Payments (74 FR 62201; November 25, 

2009; http://www.gpo.gov/fdsys/pkg/FR2009-11-25/pdf/E9-28493.pdf). 

Accordingly, as the President explained, 

it is important for Federal agencies ‘‘to 

more effectively tailor their 

methodologies for identifying and 

measuring improper payments to those 

programs, or components of programs, 

where improper payments are most 

likely to occur.’’ Moreover, the 

elimination of unnecessary and overly 

burdensome requirements can advance 

the goal of strengthened program 

integrity, by enabling resources to be 

focused on those activities that are most 

effective at reducing payment errors and 

eliminating waste, fraud and abuse. 

Accordingly, in his February 2011 

Memorandum on Administrative 

Flexibility, Lower Costs, and Better 

Results for State, Local, and Tribal 

Governments, the President directed 

Federal agencies to ‘‘[w]ork with State, 

local, and tribal governments to identify 

the best opportunities to realize 

efficiency, promote program integrity, 

and improve program outcomes, 

including opportunities, consistent with 

law, that reduce or streamline 

duplicative paperwork, reporting, and 

regulatory burdens and those that more 

effectively use Federal resources across 

multiple programs or States.’’ 

The reform ideas described below are 

being considered as approaches for 

pursuing these objectives. 

The purpose of this notice is to solicit 

public input on a range of ideas for 

reforming the requirements that govern 

the management of Federal financial 

assistance awards. OMB is interested in 

receiving broad public feedback on 

these ideas. Based on the feedback that 

is received, as well as on the ongoing 

discussions among Federal agencies 

(including their Inspectors General) as 

well as with other stakeholders, OMB in 

the coming months will develop a set of 

proposed amendments that, later this 

year, will be published for public 

comment in the Federal Register. The 

public comments on that proposed set 

of revisions will in turn be considered 

as OMB develops a final notice that will 

adopt a set of reforms. Following the 

implementation of these reforms, OMB 

will continue to monitor their impacts 

to evaluate whether (and the extent to 

which) the reforms are achieving their 

desired results, and OMB will consider 

making further modifications as 

appropriate. 

In addition, OMB is considering 

implementing these reforms through the 

development and issuance of an 

integrated set of guidelines that would 

be contained in one consolidated 

circular, in which current 

administrative requirements that 

currently vary by type-of-recipient 

would be streamlined into one set of 

common requirements, while at the 

same time some provisions that vary 

among different types of recipients 

would be retained. The goal of such a 

streamlining would be to increase the 

consistency, and decrease the 

complexity, in how the Federal 

Government’s financial assistance 

programs are administered. Among 

other benefits, this will make it easier 

for applicants and recipients of Federal 

awards to understand and implement 

these requirements. 

B. Background 

The reform ideas outlined in this 

notice reflect input from a year of work 

by the Federal and non-Federal 

financial assistance community. In 

response to the President’s direction 

that OMB and Federal agencies identify 

ways to make the oversight of Federal 

funds more effective and more efficient, 

OMB worked with the Office of Science 

and Technology Policy (OSTP) to 

convene meetings with both Federal and 

non-Federal stakeholders to discuss 

possible ideas for reform efforts. These 

meetings resulted in OMB receiving a 

series reform ideas at the end of August 

2011 that have since been further 

developed as described below. In 

addition, over 150 comments were 

received from the university and 

research community. These comments 

are publicly available at http:// 

rbm.nih.gov/a21_task_force.htm. 

On October 27, 2011, the OMB 

Director issued Memorandum M–12–01, 

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Creation of the Council on Financial 

Assistance Reform (http:// 

www.whitehouse.gov/sites/default/files/ 

omb/memoranda/2012/m-12-01.pdf). To 

‘‘create a more streamlined and 

accountable structure to coordinate 

financial assistance,’’ the Memorandum 

established the interagency Council on 

Financial Assistance Reform (COFAR) 

as a replacement for two Federal boards 

(the Grants Policy Council and the 

Grants Executive Board). The 10- 

member COFAR is composed of OMB’s 

Office of Federal Financial Management 

(Co-Chair); the eight largest grantmaking agencies, which are the 

Departments of Health and Human 

Services (a Co-Chair), Agriculture, 

Education, Energy, Homeland Security, 

Housing and Urban Development, 

Labor, and Transportation; and one 

additional rotating member to represent 

the perspectives of other agencies, 

which for the first two-year term is the 

National Science Foundation. 

Since the COFAR’s first meeting on 

November 4, 2011, it has worked to 

formulate and further develop reform 

ideas for consideration to streamline 

and improve financial management 

policy for Federal assistance awards. 

These reform ideas are presented below, 

in Part II of this notice. In Part III, 

specific questions are posed regarding 

these reform ideas, for which comments 

are especially invited, along with other 

comments. 

II. Reform Ideas for Comment 

OMB invites comments from the 

public on all issues addressed in this 

advance notice. We invite those 

interested in responding to answer all of 

the questions posed or to choose to 

respond only to those questions of 

greatest interest to them. This feedback 

will assist us in fully considering issues 

and developing policies. In addition, the 

public is invited to suggest additional 

reform ideas for our consideration. 

Finally, we should note that, as this is 

an advance notice, the fact that OMB is 

requesting public comment on a reform 

idea does not mean that OMB has 

concluded that the reform idea 

necessarily should be pursued. That is 

why public comment is being requested, 

so that OMB and Federal agencies (and 

other stakeholders) can have the benefit 

of the public’s input, views and 

perspectives at this stage of the process, 

as we continue to evaluate these ideas 

for reform. 

The reform ideas under discussion are 

outlined below in three main categories: 

• Section A: reforms to audit 

requirements (Circulars A–133 and 

A–50) 

• Section B: reforms to cost principles 

(Circulars A–21, A–87, and A–122, and 

the Cost Principles for Hospitals) 

• Section C: reforms to administrative 

requirements (the government-wide 

Common Rule implementing Circular 

A–102; Circular A–110; and Circular 

A–89) 

A. Reforms to Audit Requirements 

(Circulars A–133 and A–50) 

This section discusses ideas for 

changes that would be made to the audit 

guidance that is contained in Circular 

A–133 on Audits of States, Local 

Governments, and Non-Profit 

Organizations and in Circular A–50 on 

Audit Follow-up. The following are 

ideas for reform that have been raised 

and discussed. 

1. Concentrating audit resolution and 

oversight resources on higher dollar, 

higher risk awards. 

Changing the Single Audit framework 

could enable agencies to focus their 

oversight and follow-up resources in the 

most efficient and effective way for 

targeting improper payments, waste, 

fraud, and abuse. The following 

oversight guidelines are an illustrative 

example of the form that a revised 

framework for the Single Audit 

requirement might take: 

A. Entities that expend less than 

$1 million in Federal awards would not 

be required to conduct a Single Audit. 

This would be an increase in the current 

threshold of $500,000, below which 

entities are currently not required to 

conduct Single Audits. 

B. Entities that expend between 

$1 million and $3 million in Federal 

awards would be required to undergo a 

more focused version of the Single 

Audit, which would differ from current 

Single Audit requirements in that once 

a major program determination has been 

made, auditors would review only two 

compliance requirements for those 

programs. Allowable and unallowable 

costs would always be one of the 

required compliance requirements, and 

agencies would have the discretion to 

select the second compliance 

requirement for each of their programs 

as they deem most appropriate. OMB 

would provide guidance to agencies that 

this second compliance requirement 

should be the one that, for the particular 

program, would best target the risk of 

improper payments or waste, fraud, and 

abuse. 

C. Entities that expend more than 

$3 million in Federal awards would 

undergo a full Single Audit. These 

Audits would be strengthened per the 

ideas in reforms 2–5 (below) to give 

agencies better tools to reduce improper 

payments and to eliminate waste, fraud, 

and abuse. 

Raising the threshold for a Single 

Audit (from $500,000 to $1 million) 

would reduce the administrative burden 

for audited entities and for auditing 

agencies, allowing the agencies to 

concentrate their audit oversight and 

follow-up resources more closely on 

other entities that are higher-dollar and 

higher-risk. Focusing the Single Audit 

requirement (for entities expending 

between $1 million and $3 million) to 

two compliance requirements would 

enable agencies to tighten their scrutiny 

on the highest risk areas of program 

oversight while at the same time 

reducing the burden—for both agencies 

and recipients—associated with 

collecting and resolving audit findings 

in lower risk areas. This would narrow 

the scope of compliance-related 

information that agencies receive for 

entities expending below $3 million. 

Finally, maintaining the full Single 

Audit for entities expending more than 

$3 million would ensure that agencies 

still receive full Single Audit 

compliance information for higher 

dollar recipients, and that they will be 

able to shift more resources to provide 

the necessary level of oversight to those 

recipients. 

2. Streamlining the universal 

compliance requirements in the Circular 

A–133 Compliance Supplement. 

For all entities that undergo a full 

Single Audit, the universal compliance 

requirements listed in the Circular 

A–133 Compliance Supplement could 

be streamlined to focus on proper 

stewardship of Federal funds. 

This could be done, for example, by 

emphasizing—in the universal 

compliance requirements—those 

elements that address improper 

payments, waste, fraud, abuse, and 

program performance, while 

streamlining other elements. Under this 

approach, a subset of compliance 

requirements would be targeted for 

increased testing, larger sample sizes, or 

lower levels of materiality. Examples of 

these could include: Allowable or 

unallowable activities and costs, 

eligibility, reporting, selection of 

subrecipients and subrecipient 

monitoring, special tests and provisions, 

period of availability of Federal funds, 

and compliance of procurement with 

suspension and debarment policies. At 

the same time, other compliance 

requirements could either be made 

optional for testing (depending on the 

material effect of that requirement on 

the program) or could have smaller 

sample sizes and higher levels of 

materiality. In addition, Federal 

agencies would have the ability, on a 

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program-specific basis to place higher 

emphasis through the Compliance 

Supplement process on those elements 

(no longer universal) which the agency 

believes are relevant to prevent waste, 

fraud, or abuse. 

Refocusing the Single Audit 

Compliance Supplement to reduce the 

number of types of compliance 

requirements tested would both reduce 

the audit burden on recipients and 

provide agencies with more risk-based 

audits. This refocusing of the Single 

Audit is intended to allow agencies to 

concentrate their audit resolution and 

oversight resources on the requirements 

most essential to managing waste, fraud, 

and abuse and reducing improper 

payments. This could result in a more 

focused audit that produces the findings 

needed to ensure accountability, while 

relieving the burden of audit work on 

issues that are secondary to the integrity 

of funds. Agencies could add back 

specific requirements under program 

specific tests and provisions where 

necessary. This would limit the types of 

compliance information that Federal 

agencies routinely receive from the 

Single Audit process. 

3. Strengthening the guidance on 

audit follow-up for Federal awarding 

agencies. 

This reform approach could include 

changes along the following lines: 

• Requiring agencies to designate a 

senior accountable agency official to 

oversee the audit resolution process; 

• Requiring agencies to implement 

audit-risk metrics including timeliness 

of report submission, number of audits 

that did not have an unqualified auditor 

opinion on major programs, and number 

of repeat audit findings; 

• Encouraging agencies to engage in 

cooperative audit resolution with 

recipients; and 

• Encouraging agencies to take a proactive approach to resolving weaknesses 

and deficiencies, whether they are 

identified with single specific programs 

or cut across the systems of an audited 

recipient. 

To improve audit follow-up, the 

Federal Government would digitize 

Single Audit reports into a searchable 

database to support analysis of audit 

results by Federal agencies and passthrough entities. 

Strengthening audit resolution 

policies should result in agencies taking 

a more pro-active and collaborative 

approach towards following- up on 

audit findings, which should result in a 

decrease in audit findings and program 

risk over time. This collaborative 

approach would be envisioned more as 

a mediation process between agencies 

and recipients, with informal assistance 

as needed, rather than a more formal 

provision of training or technical 

assistance. As underlying programmatic 

weaknesses are resolved and repeat 

findings reduced, both recipients’ and 

agencies’ audit burdens will be 

lessened. This may require more 

resources from Federal agencies as they 

work to strike the right balance on proactive oversight. A web-based 

searchable database of Single Audit 

findings will provide a key tool to 

improve the utility of audits. 

4. Reducing burden on pass-through 

entities and subrecipients by ensuring 

across-agency coordination. 

In order to reduce redundancy and 

burden, this reform idea would involve 

making more explicit the existing 

requirement that Federal awarding 

agencies are responsible for 

coordinating additional audits of a 

recipient entity with the Federal 

cognizant or oversight agency for audit 

for that entity. This would in no way 

impact the ability of Inspectors General 

to conduct audit work as deemed 

necessary in accordance with the 

Inspector General Act of 1978, as 

amended. 

Ensuring that audits are coordinated 

across Federal agencies, and that 

agencies conduct audit follow-up for 

internal-control issues at those 

subrecipients which receive the 

majority of their Federal funds through 

direct Federal assistance, would reduce 

the number of subrecipients for which 

pass-through entities engage in followup efforts that could duplicate the 

Federal efforts. 

5. Reducing burdens on pass-through 

entities and subrecipients from audit 

follow-up. 

For those situations in which an 

entity receives a majority of its Federal 

funds through direct grants from the 

Federal government, and some Federal 

funds through subawards, the reform 

idea would be to require Federal 

agencies to conduct audit follow-up of 

the subawards for those audit findings 

regarding financial or internal control 

systems that are not specific to the 

program delivery of the subawards. 

Such a change to Circular A–133 

would be aimed at eliminating 

duplicative audit follow-up work 

performed by a pass-through entity 

without providing significant additional 

work to Federal agencies that already 

will be following-up on these same 

audit findings, as well as at simplifying 

the follow-up for the subrecipient. Passthrough entities that give subawards 

would no longer be required to resolve 

financial and internal control issues but 

could instead focus on the 

programmatic requirements of the 

subawards they make. Subrecipients 

would not be required to negotiate with 

both the Federal government and the 

pass-through entity over the same 

financial and control issues that affect 

both types of awards. However, once the 

Federal government has resolved the 

financial and control issues with the 

subrecipient, a pass-through entity that 

awarded a subaward would be 

responsible for audit follow-up 

monitoring of these general findings to 

ensure that the subrecipient complies 

with the audit resolution as it applies to 

the subgrants made by the primary 

grantee. The subrecipient’s Federal 

awarding agency would perform a 

normal audit follow-up for the financial 

and control issues, issuing management 

decisions on these audit findings, and 

provide a process to make these 

management decisions and a Federal 

contact person readily available to the 

affected pass-through entities. 

B. Reforms to Cost Principles (Circulars 

A–21, A–87, and A–122, and the Cost 

Principles for Hospitals) 

This section discusses ideas for 

changes that would be made to the OMB 

cost-principle circulars that have been 

placed at 2 CFR Parts 220, 225, and 215 

(Circulars A–21, Cost Principles for 

Educational Institutions; Circular A–87, 

Cost Principles for State, Local and 

Indian Tribal Governments; and 

Circular A–122, Cost Principles for NonProfit Organizations), and to the Cost 

Principles for Hospitals that are in the 

regulations of the Department of Health 

and Human Services at 45 CFR Part 75, 

Appendix E (Principles for Determining 

Costs Applicable to Research and 

Development Under Grants and 

Contracts with Hospitals). The following 

are ideas for reform that have been 

raised and discussed. 

1. Consolidating the cost principles 

into a single document, with limited 

variations by type of entity. 

2. For indirect (‘‘facilities and 

administrative’’) costs, using flat rates 

instead of negotiated rates. 

• One option would be to establish a 

mandatory flat rate that is discounted 

from the recipient’s already negotiated 

rate. This approach could significantly 

reduce the burden associated with 

indirect cost rate calculation and 

negotiation, as well as reduce overall 

indirect costs. 

• Another option would give 

recipients the option of accepting a flat 

rate or negotiating a rate. Recipients 

with a previously negotiated rate may 

have the additional option of accepting 

a discounted rate from their already 

negotiated rate. Recipients with a 

previously negotiated rate may have the 

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additional option of accepting a 

discounted rate from their already 

negotiated rate. Discounted rates could 

be maintained for up to a four-year 

period with minimal documentation, or 

raised through negotiation with full 

documentation. 

Under both options, OMB would 

work with cognizant federal agencies 

and the HHS Division of Cost Allocation 

to develop a list of flat rates and 

discount factors by entity type. The aim 

of such approaches would be to reduce 

negotiation costs for agencies while 

reducing—for agencies, recipients, and 

subrecipients—the administrative 

burden associated with rate preparation 

and negotiations. Entities with CAScovered contracts would still be 

required to use a negotiated rate for 

those contracts. 

Establishing either a mandatory or 

optional flat indirect cost rate could 

reduce administrative burdens on 

recipients associated with documenting, 

justifying, negotiating, and maintaining 

support for a negotiated rate. This 

burden can be substantial depending on 

the extent to which an entity analyzes, 

documents, and negotiates a rate or 

group of rates. By setting the flat rate at 

a lower level than the negotiated rate 

would have been, this approach could 

also reduce indirect-costs expenses 

incurred by Federal agencies. OMB 

would continue to work with 

stakeholders to address potential 

challenges to implementation, including 

finding the right algorithms for setting 

the rates and reducing overall indirect 

costs. 

One consideration here is the issue of 

whether Federal agencies would 

actually end up incurring additional 

indirect costs if each grantee had the 

option of choosing to use a flat rate or 

a negotiated rate. The concern here is 

that, through their choices, grantees 

would apply those rates that would 

result in the highest indirect cost 

reimbursement, with these increases in 

indirect costs thereby resulting in less 

funding being available for direct 

programmatic activities. OMB is seeking 

input on how to structure a reform 

approach in a way that would ensure a 

reduction in overall indirect costs. 

3. Exploring alternatives to time-andeffort reporting requirements for salaries 

and wages. 

This reform idea would involve 

working with the Federal grant and 

Inspector General (IG) communities to 

identify risks associated with 

justifications for salaries and wages and 

to identify possible alternative 

mechanisms for addressing those risks 

beyond current time-and-effort reporting 

requirements. 

This would include consideration of 

the ideas described in existing pilots or 

development of new pilots to 

accountably document the allowability 

and allocability of salaries and wages 

charged to Federal awards as direct 

costs. The first three pilots under 

consideration are those of the Federal 

Demonstration Partnership (http:// 

sites.nationalacademies.org/PGA/fdp/ 

PGA_055834); the Department of 

Labor’s Workforce Innovation Fund 

(http://www.doleta.gov/grants/ 

find_grants.cfm); and the Department of 

Education’s Request for Ideas (http:// 

www.ed.gov/blog/2011/10/grantingadministrative-flexibility-for-bettermeasures-of-success/). 

Considering and developing pilot 

programs that provide alternatives to 

time-and-effort reporting could result in 

substantial reductions of the 

administrative burden currently 

associated with compliance, while 

enhancing compliance and stewardship. 

OMB will work with IGs and other 

stakeholders to ensure that any 

alternative provides appropriate levels 

of auditable and accountable 

information. 

4. Expanding application of the 

Utility Cost Adjustment for research to 

more higher education institutions. 

This reform idea would expand 

application of the 1.3% indirect 

(facilities and administration) costs 

adjustment for utility costs of research 

to more institutions of higher education. 

The Utility Cost Adjustment (UCA) is 

currently provided to 65 institutions of 

higher education for research grants. 

Under this proposal, the UCA would be 

extended to other institutions that 

submit to their cognizant Federal agency 

a utility cost study justifying an increase 

in utility cost reimbursement and an 

approved plan to reduce their utility 

costs over time. OMB would work with 

Department of Defense’s Office of Naval 

Research and the Department of Health 

and Human Services’ Division of Cost 

Allocation to develop guidelines and a 

format for the cost studies to ensure 

standardization across entities. 

Extending the opportunity to apply 

for the UCA to more institutions of 

higher education for research is aimed 

at resolving the equitable treatment 

concern that has been raised by those 

academic institutions that have not been 

offered this opportunity since the UCA 

became available to some institutions in 

1998. This revision would address that 

concern while still ensuring cost 

accountability and reduced utility 

consumption by requiring a utility cost 

study (to be developed by OMB in 

coordination with DOD’s Office of Naval 

Research and HHS’ Division of Cost 

Allocation) as well as a plan to reduce 

utility costs in order for the adjustment 

to be approved. If all remaining 

institutions apply for and receive this 

adjustment, this revision could raise 

Federal indirect cost reimbursements for 

utility costs by up to approximately $80 

million per year once fully 

implemented. 

5. Charging directly allocable 

administrative support as a direct cost. 

This reform idea would involve 

clarifying the circumstances under 

which institutions of higher education, 

and other entities where appropriate, 

may charge directly allocable 

administrative support as a direct cost. 

Included are project-specific activities 

such as managing substances/chemicals, 

data and image management, complex 

project management, and security. 

This clarification would be aimed at 

ensuring that charges are appropriately 

classified in order to provide support for 

all of the costs directly associated with 

a Federal award, while reducing the 

burdens of securing special permission 

to purchase what have become routine 

supplies. This is not intended to result 

in a net cost increase, but rather to 

provide clarity in how allowable costs 

are routinely charged. 

6. Including the cost of certain 

computing devices as allowable direct 

cost supplies. 

This reform idea would involve 

explicitly including the cost of 

computing devices not otherwise 

subject to inventory controls (i.e. cost 

less than the organization’s equipment 

threshold) as allowable direct cost 

supplies. Applicants for Federal awards 

would be required to document these 

items as a separate line-item in their 

budget requests, but would not be 

required to conduct the more stringent 

inventory controls in place for 

equipment. 

This clarification would be aimed at 

ensuring that charges are appropriately 

classified in order to provide support for 

all of the costs directly associated with 

a Federal award, while reducing the 

burdens of securing special permission 

to purchase what have become routine 

supplies. This is not intended to result 

in a net cost increase, but rather to 

provide clarity in how allowable costs 

are routinely charged. 

7. Clarifying the threshold for an 

allowable maximum residual inventory 

of unused supplies. 

This reform idea would involve 

harmonizing cost principles with 

existing language in Circulars A–110 

and A–102 to clarify that $5,000 is the 

threshold for an allowable maximum 

residual inventory of unused supplies 

that may be retained for use on another 

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Federal award at no cost, as long as the 

cost was properly allocable to the 

original agreement at the time of 

purchase. 

This clarification would be aimed at 

minimizing confusion about appropriate 

disposal or re-expensing of unused 

inventories at the conclusion of an 

award and at ensuring consistency in 

the application of the cost principles in 

the circulars. 

8. Eliminating requirements to 

conduct studies of cost reasonableness 

for large research facilities. 

This reform idea would involve 

eliminating requirements for 

institutions of higher education, and 

other entities where appropriate, to 

conduct studies of cost reasonableness 

for large research facilities. This would 

be aimed at reducing paperwork that is 

costly to generate and may yield 

information that is of minimal use to the 

awarding agency. 

9. Eliminating restrictions on use of 

indirect costs recovered for depreciation 

or use allowances. 

This reform idea would involve 

eliminating the restrictions on the use of 

the portion of indirect cost recoveries 

associated with depreciation or use 

allowances. This would be aimed at 

reducing paperwork that is costly to 

generate and may yield information that 

is of minimal use to the awarding 

agency. 

10. Eliminating requirements to 

conduct a lease-purchase analysis for 

interest costs and to provide notice 

before relocating federally sponsored 

activities from a debt-financed facility. 

This reform idea would involve 

eliminating requirements for 

institutions of higher education, and 

other entities where appropriate, to 

conduct a lease-purchase analysis to 

justify interest costs, and to notify the 

cognizant Federal agency prior to 

relocating federally sponsored activities 

from a facility financed by debt. This 

would be aimed at reducing paperwork 

that is costly to generate and may yield 

information that is of minimal use to the 

awarding agency. 

11. Eliminate requirements that 

printed ‘‘help-wanted’’ advertising 

comply with particular specifications. 

This reform idea would update the 

cost principles to reflect the media now 

used for those notices. 

12. Allowing for the budgeting for 

contingency funds for certain awards. 

This reform idea would involve 

clarifying that budgeting for 

contingency funds associated with a 

Federal award for the construction or 

upgrade of a large facility or instrument, 

or for IT systems, is an acceptable and 

necessary practice; that the method by 

which contingency funds are managed 

and monitored is at the discretion of the 

Federal funding agency. Contingency 

related amounts should not be included 

in recipient proposed budgets for 

specific awards or in the actual award 

documents; risk-adjusted total cost 

estimates should be based on verifiable 

supporting data consistent in 

compliance with Generally Accepted 

Accounting Principles (GAAP) and with 

standard project-management practices. 

Rebudgeting out of these funds would 

not be allowable. 

Allowing recipients to budget for 

contingency funds is aimed at clarifying 

and harmonizing the rules on what is 

deemed standard project management 

practice and to encourage development 

of shared IT services. There could be 

some cost implications to projects if and 

when the contingency funds become 

necessary spending. 

13. Requesting that the Cost 

Accounting Standards Board (CASB) 

consider increasing the minimum 

threshold for disclosure statements. 

This reform idea would involve OMB 

requesting that the Cost Accounting 

Standards Board consider the 

following— 

• Increasing the minimum threshold 

for institutions of higher education to 

file a disclosure statement of costaccounting standards from $25 million 

to $50 million in Federal awards per 

year based on the average of the entity’s 

most recent three years; 

• Establish that the requirement no 

longer applies if an entity drops below 

that threshold and is not required to file 

under current Cost Accounting 

Standards Board (CASB) requirements 

described at 48 CFR 9903.202–1; and 

• Remove exhibit A of Circular A–21 

from future guidance. 

OMB would also request that the 

CASB reassess its rule to increase the 

$25 million procurement contract 

threshold for institutions of higher 

education to conform to the $50 million 

threshold for other types of entities. 

OMB would also link the requirement to 

future adjustments to the CASB rule. 

14. Allowing for excess or idle 

capacity for certain facilities, in 

anticipation of usage increases. 

This reform idea would allow for 

excess or idle capacity in consolidated 

data centers, telecommunications, and 

public safety facilities. In order to 

consolidate data centers and operate in 

a cloud-based environment, data centers 

require excess capacity at their creation 

in order to accommodate increases in 

usage later on. Other 

telecommunications facilities and 

public safety projects have similar 

characteristics. Federal sharing of these 

costs would be contingent on the 

grantee providing a multi-year plan for 

reaching full capacity of the data center. 

The OMB cost principles currently do 

not address the excess or idle capacity 

in consolidated data centers. 

15. Allowing costs for efforts to collect 

improper payment recoveries. 

This reform idea would involve 

revising OMB guidelines to allow costs 

for expenses associated with the effort 

to collect improper payment recoveries 

or related activities, if such costs are 

specifically approved or directed by the 

awarding agency. 

This change would be aimed at 

meeting the President’s directive to 

improve the Federal government’s 

ability to recover improper payments. 

While this could result in increased 

upfront costs to the agencies, the 

intention here is that awarding agencies 

would approve these costs only when 

the anticipated amount of recovered 

funding more than justifies the expense 

of collection. 

16. Specifying that gains and/or losses 

due to speculative financing 

arrangements are unallowable. 

This reform idea would involve 

specifying that gains and/or losses, 

related to debt arrangements on capital 

assets, due to speculative financing 

arrangements (such as hedges, 

derivatives, etc.) are unallowable. Due 

to the volatile nature of such 

instruments, all derivative and hedging 

instruments would be unallowable, 

including derivative and hedging 

instruments embedded in other 

contracts, whether used for risk 

management purposes, forecasting, 

calculations used for the preparation of 

proposals for federal funding (e.g., 

forecasting contingencies) or otherwise, 

and regardless of whether related to 

assets, liabilities, or expenses. 

This change would be aimed at 

updating the cost principles to address 

all types of debt arrangements. 

17. Providing non-profit organizations 

an example of the Certificate of Indirect 

Costs. 

This reform idea would involve 

providing non-profit organizations an 

example of the required certification 

(Certificate of Indirect Costs) similar to 

the information that is already provided 

for state, local, and tribal governments. 

This would be aimed at providing 

uniformity in documentation 

requirements across different types of 

entities. 

18. Providing non-profit organizations 

with an example of indirect cost 

proposal documentation requirements. 

This reform idea would involve 

providing, for non-profit organizations, 

an example of indirect cost proposal 

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11784 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Proposed Rules 

documentation requirements that are 

similar to the information provided for 

state, local, and tribal governments. This 

would be aimed at providing uniformity 

in documentation requirements across 

different types of entities. 

C. Reforms to Administrative 

Requirements (the Common Rule 

implementing Circular A–102; Circular 

A–110; and Circular A–89) 

This section discusses ideas for 

changes that would replace the 

government-wide common rule 

implementing Circular A–102 on Grants 

and Cooperative Agreements with State 

and Local Governments and that would 

revise Circular A–110 on Uniform 

Administrative Requirements for Grants 

and Other Agreements with Institutions 

of Higher Education, Hospitals and 

Other Non-Profit Organizations (2 CFR 

part 215) and Circular A–89 on Catalog 

of Federal Domestic Assistance. The 

following are ideas for reform that have 

been raised and discussed 

1. Creating a consolidated, uniform 

set of administrative requirements. 

This reform idea would involve 

consolidating the administrative 

requirements in OMB Circulars A–102 

and A–110 into a uniform set of 

administrative requirements for all grant 

recipients. This uniform guidance 

would continue to include limited 

exceptions by type of recipient. 

2. Requiring pre-award consideration 

of each proposal’s merit and each 

applicant’s financial risk. 

This reform idea would involve 

requiring agency consideration of the 

merit of each proposal and the financial 

risk associated with each applicant prior 

to making an award. (Many agencies 

currently award grants based on merit 

review under current law and policy. 

The proposed change would be a reform 

in the sense that such merit-based 

review would be required for the first 

time in an OMB circular.) Indicators of 

risk would include past financial, 

internal control, and programmatic 

performance. The outcome of the review 

should affect award decisions, and risk 

assessment may also affect terms and 

conditions. This would formalize a 

‘‘best practice’’ that is already 

conducted by many agencies, and 

agencies will continue to have the 

discretion to determine the format of the 

review. This reform would not apply to 

formula grants. 

This change would be aimed at 

ensuring greater transparency in the 

award making process as well as higher 

quality of awarded projects, and at 

delivering improved results with less 

risk of waste, fraud, or abuse during 

implementation. 

In evaluating risks, agencies would be 

required to consider factors that could 

include: Financial stability; quality of 

management and internal control 

systems and the ability to meet the 

management standards prescribed in the 

amended guidance; history of 

performance; Federal award Single 

Audit reports and findings for previous 

awards; and any other factors that may 

affect the applicant’s ability to 

effectively implement statutory, 

regulatory, or other requirements 

imposed on recipients. Merit reviews 

may be implemented according to the 

individual practices of each agency. 

This reform would include explicit 

authority for agencies to modify award 

decisions as well as the terms and 

conditions of any award based on the 

findings of a risk review. 

Articulating the requirement for this 

review in an OMB circular could ensure 

greater transparency in the award 

making process and higher quality of 

awarded projects. There may be some 

additional burden for agencies that do 

not currently conduct such reviews to 

incorporate them into their processes, 

and could also result in additional 

information collections from recipients. 

3. Requiring agencies to provide 90- 

day notice of funding opportunities. 

This reform idea would involve 

requiring Federal agencies to provide 

90-day advance forecast of funding 

opportunities in an updated Catalog of 

Federal Financial Assistance (CFFA) 

that will replace the existing Catalog of 

Federal Domestic Assistance (CFDA). 

This would not affect the requirement to 

post actual notices of funding 

opportunities on Grants.gov. 

This change would be aimed at 

providing applicants with additional 

time and information with which to 

prepare financial assistance 

applications, thereby improving the 

relevance and quality of proposals 

submitted to Federal agency programs. 

Exceptions to the 90-day notice 

requirement would include statutory 

obligations or exigent circumstances 

that dictate a shorter timeframe. The 

new enhanced CFFA will include both 

domestic and international funding 

priorities for grants, loans, insurance, 

and other types of financial assistance, 

including information about projected 

amounts of available funds and a 

summary of general eligibility 

requirements. These notices of intended 

priorities may change based on 

modifications to funding cycles and/or 

statutory authorities. 

4. Providing a standard format for 

announcements of funding 

opportunities. 

This reform idea would incorporate 

into circulars the existing requirement 

for certain categories of information to 

be published in announcements of 

public funding opportunities. See OMB 

Memorandum M–04–01 of October 15, 

2003 (http://www.whitehouse.gov/omb/ 

memoranda_fy04_m04-01), which 

announced the Federal Register notice 

that OMB published at 68 FR 58146 

(October 8, 2003). 

Among other information, the 

opportunity announcement must 

include specific eligibility or 

qualification information and a clear 

description of all criteria used in agency 

review of applications for the grant 

opportunity. Further, agencies must 

disclose all terms and conditions that 

may be attached to the funded awards 

and general information regarding postaward reporting requirements, except 

for award specific terms and conditions 

determined during the pre-award 

process. Providing this level of 

transparency at the solicitation stage 

assists applicants in determining not 

only whether they are eligible and/or 

qualified for an award, but also the 

scope of recipient responsibilities 

associated with an award. 

5. Reiterating that information 

collections are subject to Paperwork 

Reduction Act approval. 

This reform idea would involve 

reiterating that information collection 

requests are limited to standardized data 

elements approved by OMB, as required 

under the Paperwork Reduction Act of 

1995 (PRA), plus OMB-approved 

exceptions for all applications and 

reports. 

Continued efforts at data 

standardization are intended to improve 

governmentwide program management; 

enhance transparency in Federal 

awards; and streamline and reduce the 

reporting burden, including the time 

necessary to comply with application 

and reporting requirements. For both 

applications and post-award reporting, 

there are current requirements that 

agencies use standard OMB-approved 

governmentwide information 

collections, with deviations approved 

by OMB on a limited basis. Continued 

data standardization will also support 

OMB and Federal agency efforts to 

develop a comprehensive, end-to-end 

grants reporting system that allows 

applicants and recipients to apply for 

and report on all Federal grants at one 

location. Approved collections would 

be designed to include necessary 

information for program measurement 

and monitoring. This reform would in 

some cases limit Federal agencies’ 

ability to require unique information 

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Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Proposed Rules 11785 

collections for particular program, 

except where required by statute. 

III. Questions for Comment 

The list below includes the questions 

about these reform ideas that address 

issues which are of greatest interest to 

OMB at this stage of the process. 

Comments addressing any other 

concerns, and other types of feedback, 

are also welcome. 

In addition, as was explained at the 

beginning of this notice, the public 

comments received by OMB will be 

posted on OMB’s Web site and at http:// 

www.regulations.gov. Accordingly, 

please do not include in your comments 

any confidential business information or 

information of a personal-privacy 

nature. 

A. Overarching Questions 

1. Which of these reform ideas would 

result in reduced or increased 

administrative burden to you or your 

organization? 

2. Which of these reform ideas would 

be the most or least valuable to you or 

your organization? 

3. Are there any of these reform ideas 

that you would prefer that OMB not 

implement? 

4. Are there any reform ideas, beyond 

those included in this notice, that OMB 

should consider as a way to relieve 

administrative burden? 

B. Single Audits 

1. In general terms, how important are 

Single Audits to your entity or to 

entities you audit for subrecipient 

monitoring? 

2. In general terms, what impacts 

would the following changes to the 

Single Audit framework have on your 

organization in administrative burden 

and in ability to provide oversight to 

subrecipients? 

a. Increasing the Single Audit 

threshold to $1 million? 

b. Requiring a more focused Single 

Audit (with only two compliance 

requirements) for any entity expending 

between $1 million and $3 million? 

c. Requiring full Single Audits for any 

entity expending more than $3 million? 

3. Should the Single Audit 

threshold(s) be increased, and if so, to 

what extent? 

4. Which types of currently universal 

Single Audit compliance requirements 

do you think are most essential to 

identifying and mitigating waste, fraud, 

and abuse? 

5. What processes or tools should the 

Federal Government implement in order 

to ensure better coordination in the 

Single Audit oversight by Federal 

agencies and pass-through agencies, 

including in the resolution of audit 

findings that cut across multiple 

agencies’ programs? 

C. Cost Principles 

1. On indirect cost rates: 

a. Would administrative burden be 

reduced by having an indirect cost rate 

in place for 4 years? 

b. Are there any existing Federal or 

state level statutory/regulatory/agency 

requirements that would prohibit 

recipients from using a ‘‘flat’’ indirect 

cost rate if it were proposed? 

2. What are your views on the 

following types of indirect cost rates? 

a. A flat rate 

b. Longer term for negotiated rates to 

be in effect 

c. A flat rate that would be a fixed 

percentage of the organization’s already 

existing negotiated rate 

3. In general terms, what would be the 

cost implications of implementing each 

of the following reforms, and/or of all of 

them together? 

a. The proposed clarifications to 

allowable charges of directly allocable 

administrative support as a direct cost. 

As currently envisioned, reforms would 

clarify that project-specific activities 

such as managing substances/chemicals, 

data and image management, and 

security are allowable. 

b. Allowing costs associated with 

recovery of improper payments. 

c. Allowing excess capacity for 

telecommunications and public safety 

projects? 

4. Would you be potentially interested 

in participating in a piloted alternative 

for time-and-effort reporting? Is there a 

permanent change to time-and-effort 

requirements that you recommend OMB 

consider? 

5. If your organization is an 

educational institution that does not 

currently receive the Utility Cost 

Adjustment (UCA), what are the general 

factors that your organization would 

likely consider in deciding whether to 

conduct a cost study, and complete a 

plan to reduce utility costs, in order to 

justify receiving the UCA? 

6. For organizations with CAScovered contracts, are there differences 

between what is envisioned here and 

the standards for CAS-covered contracts 

in the FAR that you believe could be 

challenging to address? 

D. Administrative Requirements 

1. What areas of past performance 

should be considered as part of a 

Federal agency assessment of recipient 

risk (e.g., fulfillment of statutory 

matching requirements, record of sound 

financial management practices with no 

significant or material findings or 

weaknesses, ability to meet established 

deadlines)? 

2. What specific standards should be 

considered in Federal agencies’ 

evaluation of merit prior to making 

Federal awards? 

a. How should these be applied? 

b. What elements and what source 

materials should be looked at? 

3. With respect to the existing 

government-wide standard information 

collection requests (ICRs) for grant 

applications and grant reporting— 

a. Do these ICRs provide necessary 

information to enable Federal agencies 

to review grant applications or to 

monitor the progress of grant awardees? 

b. Are these ICRs unnecessarily 

burdensome and, if so, in what way(s)? 

4. Should there be sets of standard 

data elements based on the type of 

assistance being provided (e.g. research, 

construction, social services, 

scholarships or aid program awards, 

etc.)? 

5. Are there any system issues and 

associated costs that may arise as a 

result of implementing the new preaward and post award requirements? In 

general, what is the rough order of 

relative magnitude of these costs? 

Daniel I. Werfel, 

Controller. 

[FR Doc. 2012–4521 Filed 2–27–12; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF ENERGY 

10 CFR Part 431 

[Docket No. EERE–2010–BT–STD–0043] 

RIN 1904–AC36 

Energy Conservation Program: Public 

Meeting and Availability of the 

Framework Document for HighIntensity Discharge Lamps 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Notice of public meeting and 

availability of the Framework 

Document. 

SUMMARY: The U.S. Department of 

Energy (DOE) is initiating the 

rulemaking and data collection process 

to consider establishing energy 

conservation standards for highintensity discharge (HID) lamps. 

Accordingly, DOE will hold a public 

meeting to discuss and receive 

comments on its planned analytical 

approach and the issues it will address 

in this rulemaking proceeding. DOE 

welcomes written comments from the 

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