52248 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

DEPARTMENT OF VETERANS 

AFFAIRS 

38 CFR Parts 41 and 49 

RIN 2900–AJ62 

Audits of States, Local Governments, 

and Non-Profit Organizations; Grants 

and Agreements With Institutions of 

Higher Education, Hospitals, and Other 

Non-Profit Organizations 

AGENCY: Department of Veterans Affairs. 

ACTION: Final rule. 

SUMMARY: This document amends VA’s 

regulations to codify the provisions of 

revised OMB Circular A–133. That 

circular provides standards for 

consistency and uniformity among 

Federal agencies for the audits of States, 

local governments, and non-profit 

organizations expending Federal 

awards. Further, this document codifies 

the provisions of former OMB Circular 

A–110. That rule provides for uniform 

administrative requirements for grants 

and agreements with institutions of 

higher education, hospitals, and other 

non-profit organizations. Codification of 

these provisions allows VA to execute 

these standards and requirements 

through the establishment of binding 

rules. 

DATES: Effective Date: October 3, 2005. 

FOR FURTHER INFORMATION CONTACT: John 

Corso, Management Systems 

Improvement Service, (008B3), Office of 

Policy, Planning, and Preparedness, 

Department of Veterans Affairs, 810 

Vermont Avenue NW., Washington, DC 

20420, (202) 273–5927. (This is not a 

toll-free number.) 

SUPPLEMENTARY INFORMATION: In a 

document published in the Federal 

Register on August 25, 2004, (69 FR 

52333), we proposed to revise part 41 of 

VA’s regulations to codify the 

provisions of revised OMB Circular A– 

133, ‘‘Audits of States, Local 

Governments, and Non-Profit 

Organizations.’’ Further, we proposed to 

add part 49 to implement provisions of 

former OMB Circular A–110. 

We asked interested parties to submit 

comments on or before October 25, 

2004. We received no comments. 

In reviewing our proposed rule, we 

discovered several technical oversights, 

which we are correcting in this final 

rule as explained below. In 

§ 41.230(b)(2), we are substituting 

‘‘§ 41.200(d)’’ for ‘‘§ 50.200(d)’’ as there 

is no section 50.200(d). In 

§ 41.320(b)(2)(vi)–(viii), we are deleting 

‘‘of OMB Circular A–133’’ to clarify that 

we are referring to sections in part 41 of 

the title 38 regulations rather than the 

circular. In§ 49.16 for clarity, we are 

inserting ‘‘codified at’’ after ‘‘Public Law 

94–580.’’ In § 49.52, we are moving the 

third sentence of paragraph (a)(2)(iv), as 

proposed, into a separate paragraph 

(a)(2)(v) so that it mirrors the 

corresponding paragraph in 2 CFR part 

215. See 2 CFR 215.52(a)(2)(v). We are 

revising the first line of § 49.61(a) to 

read ‘‘[a]wards may be terminated in 

whole or in part only if paragraphs 

(a)(1), (a)(2) or (a)(3) of this section 

apply,’’ so that it would be consistent 

with the corresponding provision in 2 

CFR part 215. See 2 CFR 215.61(a). The 

proposed rule incorrectly suggested that 

awards could be terminated only if all 

the conditions in paragraphs (a)(1)–(3) 

applied. We are revising the caption of 

Appendix A to Part 49, which had 

incorrectly referred to ‘‘Part 59’’ in the 

proposed rule. 

We are revising the authority citations 

applicable to all of parts 41 and 49 to 

more accurately reflect VA’s authority to 

issue these rules. The authority for part 

49 will read as follows: 

Authority: 5 U.S.C. 301; 38 U.S.C. 501, 

OMB Circular A–110 (2 CFR part 215), and 

as noted in specific sections. 

The authority for part 41 will read as 

follows: 

Authority: 5 U.S.C. 301; 31 U.S.C. 7501 et 

seq.; 38 U.S.C. 501, OMB Circular A–133, 

and as noted in specific sections. 

As stated in the notice of proposed 

rulemaking, the provisions in part 49 

are intended to reproduce in title 38 the 

provisions of OMB Circular A–110, 

which OMB has codified in 2 CFR part 

215. After publishing the proposed 

rules, we learned that OMB’s 

regulations in 2 CFR 215.36 

inadvertently omitted certain provisions 

in the corresponding portions of OMB 

circular A–110 and that OMB is 

preparing an amendment to its 

regulations to correct that oversight. 

OMB has advised that our regulations 

should follow the provisions in OMB 

Circular A–110, which is binding on VA 

and all Federal agencies. Accordingly, 

this final rule incorporates the 

provisions of OMB Circular A–110 that 

were inadvertently omitted from 2 CFR 

215.36. To accomplish this, we are 

making minor revisions to § 49.36(c), as 

proposed; adding a new § 49.36(d); and 

moving proposed § 49.36(d) to 

§ 49.36(e). This new material merely 

reiterates the existing requirements of 

OMB Circular A–110, which is currently 

binding on VA. Accordingly, the 

provisions added to this final rule will 

effect no change in existing law or 

procedure and an additional period of 

public comment is unnecessary with 

respect to these changes. 

Unfunded Mandates 

The Unfunded Mandates Reform Act 

requires, at 2 U.S.C. 1532, that agencies 

prepare an assessment of anticipated 

costs and benefits before developing any 

rule that may result in expenditure by 

State, local, or tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more (adjusted annually 

for inflation) in any given year. This 

rule will have no such effect on State, 

local or tribal governments, or the 

private sector. 

Paperwork Reduction Act 

OMB approved the information 

collection associated with OMB Circular 

A–133 (§§ 41.235, 41.320, and 41.505 of 

this proposed rule) under control 

number 0348–0057. OMB approved the 

information collection associated with 

OMB Circular A–110 (codified at 2 CFR 

part 215) and contained in SF–269, SF– 

269A, SF–270, SF–272, and SF–272A 

(§ 49.52 of this final rule) under control 

numbers 0348–0004, 0348–0003, 0348– 

0038, 0348–0039. Discussion of the 

information collection request was 

published in the Federal Register both 

as a first notice for public notice and 

comment on November 5, 1996 (61 FR 

57232) and as a second notice advising 

of submission to OMB for approval on 

June 30, 1997 (62 FR 35302). 

VA is not authorized to impose a 

penalty on persons for failure to comply 

with information collection 

requirements which do not display a 

current OMB control number, if 

required. 

Regulatory Flexibility Act 

The Secretary hereby certifies that 

this final rule would not have a 

significant economic impact on a 

substantial number of small entities as 

they are defined in the Regulatory 

Flexibility Act, 5 U.S.C. 601 through 

612. This rule facilitates 

implementation of the already existing 

requirements of OMB Circular A–110 

and OMB Circular A–133 and does not 

create or change any responsibilities. 

Therefore, pursuant to 5 U.S.C. 605(b), 

the final rule is exempt from the initial 

and final regulatory flexibility analysis 

requirements of sections 603 and 604. 

Executive Order 12866 

This document has been reviewed by 

the Office of Management and Budget 

under Executive Order 12866. 

Catalog of Federal Domestic Assistance 

Numbers 

The Catalog of Federal Domestic 

Assistance program numbers for this 

document are 64.005, 64.015, 64.024, 

64.203. 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52249 

List of Subjects in 38 CFR Parts 41 and 

49 

Accounting, Grant programs, Indians, 

Intergovernmental relations, Loan 

programs. 

Approved: May 10, 2005. 

R. James Nicholson, 

Secretary of Veterans Affairs. 

■ For the reasons set forth in the 

preamble, 38 CFR Chapter 1 is amended 

as set forth below: 

■ 1. Part 41 is revised to read as follows: 

PART 41—AUDITS OF STATES, 

LOCAL GOVERNMENTS, AND NONPROFIT ORGANIZATIONS 

Subpart A—General 

Sec. 

41.100 Purpose. 

41.105 Definitions. 

Subpart B—Audits 

41.200 Audit requirements. 

41.205 Basis for determining Federal 

awards expended. 

41.210 Subrecipient and vendor 

determinations. 

41.215 Relation to other audit requirements. 

41.220 Frequency of audits. 

41.225 Sanctions. 

41.230 Audit costs. 

41.235 Program-specific audits. 

Subpart C—Auditees 

41.300 Auditee responsibilities. 

41.305 Auditor selection. 

41.310 Financial statements. 

41.315 Audit findings follow-up. 

41.320 Report submission. 

Subpart D—Federal Agencies and PassThrough Entities 

41.400 Responsibilities. 

41.405 Management decision. 

Subpart E—Auditors 

41.500 Scope of audit. 

41.505 Audit reporting. 

41.510 Audit findings. 

41.515 Audit working papers. 

41.520 Major program determination. 

41.525 Criteria for Federal program risk. 

41.530 Criteria for a low-risk auditee. 

Appendix A To Part 41—Data Collection 

Form (Form SF–SAC) 

Appendix B To Part 41—OMB Circular A–

133 Compliance Supplement 

Authority: 5 U.S.C. 301; 31 U.S.C. 7501 et 

seq.; 38 U.S.C. 501, OMB Circular A–133, 

and as noted in specific sections. 

Subpart A—General 

§ 41.100 Purpose. 

This part sets forth standards for 

obtaining consistency and uniformity 

among Federal agencies for the audit of 

non-Federal entities expending Federal 

awards. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.105 Definitions. 

Audit finding means deficiencies 

which the auditor is required by 

§ 41.510(a) to report in the schedule of 

findings and questioned costs. 

Auditee means any non-Federal entity 

that expends Federal awards which 

must be audited under this part. 

Auditor means an auditor, that is a 

public accountant or a Federal, State or 

local government audit organization, 

which meets the general standards 

specified in generally accepted 

government auditing standards 

(GAGAS). The term auditor does not 

include internal auditors of non-profit 

organizations. 

CFDA number means the number 

assigned to a Federal program in the 

Catalog of Federal Domestic Assistance 

(CFDA). 

Cluster of programs means a grouping 

of closely related programs that share 

common compliance requirements. The 

types of clusters of programs are 

research and development (R&D), 

student financial aid (SFA), and other 

clusters. ‘‘Other clusters’’ are as defined 

by the Office of Management and 

Budget (OMB) in the compliance 

supplement or as designated by a State 

for Federal awards the State provides to 

its subrecipients that meet the definition 

of a cluster of programs. When 

designating an ‘‘other cluster,’’ a State 

shall identify the Federal awards 

included in the cluster and advise the 

subrecipients of compliance 

requirements applicable to the cluster, 

consistent with § 41.400(d)(1) and 

§ 41.400(d)(2), respectively. A cluster of 

programs shall be considered as one 

program for determining major 

programs, as described in § 41.520, and, 

with the exception of R&D as described 

in § 41.200(c), whether a programspecific audit may be elected. 

Cognizant agency for audit means the 

Federal agency designated to carry out 

the responsibilities described in 

§ 41.400(a). 

Compliance supplement refers to the 

Circular A–133 Compliance 

Supplement, included as Appendix B to 

Circular A–133, or such documents as 

OMB or its designee may issue to 

replace it. This document is available 

from the Government Printing Office, 

Superintendent of Documents, 

Washington, DC 20402–9325. 

Corrective action means action taken 

by the auditee that: 

(1) Corrects identified deficiencies; 

(2) Produces recommended 

improvements; or 

(3) Demonstrates that audit findings 

are either invalid or do not warrant 

auditee action. 

Federal agency has the same meaning 

as the term agency in section 551(1) of 

title 5, United States Code. 

Federal award means Federal 

financial assistance and Federal costreimbursement contracts that nonFederal entities receive directly from 

Federal awarding agencies or indirectly 

from pass-through entities. It does not 

include procurement contracts, under 

grants or contracts, used to buy goods or 

services from vendors. Any audits of 

such vendors shall be covered by the 

terms and conditions of the contract. 

Contracts to operate Federal 

Government owned, contractor operated 

facilities (GOCOs) are excluded from the 

requirements of this part. 

Federal awarding agency means the 

Federal agency that provides an award 

directly to the recipient. 

Federal financial assistance means 

assistance that non-Federal entities 

receive or administer in the form of 

grants, loans, loan guarantees, property 

(including donated surplus property), 

cooperative agreements, interest 

subsidies, insurance, food commodities, 

direct appropriations, and other 

assistance, but does not include 

amounts received as reimbursement for 

services rendered to individuals as 

described in § 41.205(h) and § 41.205(i). 

Federal program means: 

(1) All Federal awards to a nonFederal entity assigned a single number 

in the CFDA. 

(2) When no CFDA number is 

assigned, all Federal awards from the 

same agency made for the same purpose 

should be combined and considered one 

program. 

(3) Notwithstanding paragraphs (1) 

and (2) of this definition, a cluster of 

programs. The types of clusters of 

programs are: 

(i) Research and development (R&D); 

(ii) Student financial aid (SFA); and 

(iii) ‘‘Other clusters,’’ as described in 

the definition of cluster of programs in 

this section. 

GAGAS means generally accepted 

government auditing standards issued 

by the Comptroller General of the 

United States, which are applicable to 

financial audits. 

Generally accepted accounting 

principles has the meaning specified in 

generally accepted auditing standards 

issued by the American Institute of 

Certified Public Accountants (AICPA). 

Indian tribe means any Indian tribe, 

band, nation, or other organized group 

or community, including any Alaskan 

Native village or regional or village 

corporation (as defined in, or 

established under, the Alaskan Native 

Claims Settlement Act) that is 

recognized by the United States as 

52250 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

eligible for the special programs and 

services provided by the United States 

to Indians because of their status as 

Indians. 

Internal control means a process, 

effected by an entity’s management and 

other personnel, designed to provide 

reasonable assurance regarding the 

achievement of objectives in the 

following categories: 

(1) Effectiveness and efficiency of 

operations; 

(2) Reliability of financial reporting; 

and 

(3) Compliance with applicable laws 

and regulations. 

Internal control pertaining to the 

compliance requirements for Federal 

programs (Internal control over Federal 

programs) means a process—effected by 

an entity’s management and other 

personnel—designed to provide 

reasonable assurance regarding the 

achievement of the following objectives 

for Federal programs: 

(1) Transactions are properly recorded 

and accounted for to: 

(i) Permit the preparation of reliable 

financial statements and Federal 

reports; 

(ii) Maintain accountability over 

assets; and 

(iii) Demonstrate compliance with 

laws, regulations, and other compliance 

requirements; 

(2) Transactions are executed in 

compliance with: 

(i) Laws, regulations, and the 

provisions of contracts or grant 

agreements that could have a direct and 

material effect on a Federal program; 

and 

(ii) Any other laws and regulations 

that are identified in the compliance 

supplement; and 

(3) Funds, property, and other assets 

are safeguarded against loss from 

unauthorized use or disposition. 

Loan means a Federal loan or loan 

guarantee received or administered by a 

non-Federal entity. 

Local government means any unit of 

local government within a State, 

including a county, borough, 

municipality, city, town, township, 

parish, local public authority, special 

district, school district, intrastate 

district, council of governments, and 

any other instrumentality of local 

government. 

Major program means a Federal 

program determined by the auditor to be 

a major program in accordance with 

§ 41.520 or a program identified as a 

major program by a Federal agency or 

pass-through entity in accordance with 

§ 41.215(c). 

Management decision means the 

evaluation by the Federal awarding 

agency or pass-through entity of the 

audit findings and corrective action 

plan and the issuance of a written 

decision as to what corrective action is 

necessary. 

Non-Federal entity means a State, 

local government, or non-profit 

organization. 

Non-profit organization means: 

(1) Any corporation, trust, association, 

cooperative, or other organization that: 

(i) Is operated primarily for scientific, 

educational, service, charitable, or 

similar purposes in the public interest; 

(ii) Is not organized primarily for 

profit; and 

(iii) Uses its net proceeds to maintain, 

improve, or expand its operations; and 

(2) The term non-profit organization 

includes non-profit institutions of 

higher education and hospitals. 

OMB means the Executive Office of 

the President, Office of Management 

and Budget. 

Oversight agency for audit means the 

Federal awarding agency that provides 

the predominant amount of direct 

funding to a recipient not assigned a 

cognizant agency for audit. When there 

is no direct funding, the Federal agency 

with the predominant indirect funding 

shall assume the oversight 

responsibilities. The duties of the 

oversight agency for audit are described 

in § 41.400(b). A Federal agency with 

oversight for an auditee may reassign 

oversight to another Federal agency, 

which provides substantial funding and 

agrees to be the oversight agency for 

audit. Within 30 days after any 

reassignment, both the old and the new 

oversight agency for audit shall notify 

the auditee, and, if known, the auditor 

of the reassignment. 

Pass-through entity means a nonFederal entity that provides a Federal 

award to a subrecipient to carry out a 

Federal program. 

Program-specific audit means an 

audit of one Federal program as 

provided for in § 41.200(c) and § 41.235. 

Questioned cost means a cost that is 

questioned by the auditor because of an 

audit finding: 

(1) Which resulted from a violation or 

possible violation of a provision of a 

law, regulation, contract, grant, 

cooperative agreement, or other 

agreement or document governing the 

use of Federal funds, including funds 

used to match Federal funds; 

(2) Where the costs, at the time of the 

audit, are not supported by adequate 

documentation; or 

(3) Where the costs incurred appear 

unreasonable and do not reflect the 

actions a prudent person would take in 

the circumstances. 

Recipient means a non-Federal entity 

that expends Federal awards received 

directly from a Federal awarding agency 

to carry out a Federal program. 

Research and development (R&D) 

means all research activities, both basic 

and applied, and all development 

activities that are performed by a nonFederal entity. Research is defined as a 

systematic study directed toward fuller 

scientific knowledge or understanding 

of the subject studied. The term research 

also includes activities involving the 

training of individuals in research 

techniques where such activities utilize 

the same facilities as other research and 

development activities and where such 

activities are not included in the 

instruction function. Development is the 

systematic use of knowledge and 

understanding gained from research 

directed toward the production of useful 

materials, devices, systems, or methods, 

including design and development of 

prototypes and processes. 

Single audit means an audit, which 

includes both the entity’s financial 

statements, and the Federal awards as 

described in § 41.500. 

State means any State of the United 

States, the District of Columbia, the 

Commonwealth of Puerto Rico, the 

Virgin Islands, Guam, American Samoa, 

the Commonwealth of the Northern 

Mariana Islands, and the Trust Territory 

of the Pacific Islands, any 

instrumentality thereof, any multi-State, 

regional, or interstate entity, which has 

governmental functions, and any Indian 

tribe as defined in this section. 

Student Financial Aid (SFA) includes 

those programs of general student 

assistance, such as those authorized by 

Title IV of the Higher Education Act of 

1965, as amended, (20 U.S.C. 1070 et 

seq.) which is administered by the U.S. 

Department of Education, and similar 

programs provided by other Federal 

agencies. It does not include programs 

which provide fellowships or similar 

Federal awards to students on a 

competitive basis, or for specified 

studies or research. 

Subrecipient means a non-Federal 

entity that expends Federal awards 

received from a pass-through entity to 

carry out a Federal program, but does 

not include an individual that is a 

beneficiary of such a program. A 

subrecipient may also be a recipient of 

other Federal awards directly from a 

Federal awarding agency. Guidance on 

distinguishing between a subrecipient 

and a vendor is provided in § 41.210. 

Types of compliance requirements 

refers to the types of compliance 

requirements listed in the compliance 

supplement. Examples include: 

Activities allowed or unallowed; 

allowable costs/cost principles; cash 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52251 

management; eligibility; matching, level 

of effort, earmarking; and, reporting. 

Vendor means a dealer, distributor, 

merchant, or other seller providing 

goods or services that are required for 

the conduct of a Federal program. These 

goods or services may be for an 

organization’s own use or for the use of 

beneficiaries of the Federal program. 

Additional guidance on distinguishing 

between a subrecipient and a vendor is 

provided in § 41.210. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart B—Audits 

§ 41.200 Audit requirements. 

(a) Audit required. Non-Federal 

entities that expend $500,000 or more in 

a year in Federal awards shall have a 

single or program-specific audit 

conducted for that year in accordance 

with the provisions of this part. 

Guidance on determining Federal 

awards expended is provided in 

§ 41.205. 

(b) Single audit. Non-Federal entities 

that expend $500,000 or more in a year 

in Federal awards shall have a single 

audit conducted in accordance with 

§ 41.500 except when they elect to have 

a program-specific audit conducted in 

accordance with paragraph (c) of this 

section. 

(c) Program-specific audit election. 

When an auditee expends Federal 

awards under only one Federal program 

(excluding R&D) and the Federal 

program’s laws, regulations, or grant 

agreements do not require a financial 

statement audit of the auditee, the 

auditee may elect to have a programspecific audit conducted in accordance 

with § 41.235. A program-specific audit 

may not be elected for R&D unless all 

of the Federal awards expended were 

received from the same Federal agency, 

or the same Federal agency and the 

same pass-through entity, and that 

Federal agency, or pass-through entity 

in the case of a subrecipient, approves 

in advance a program-specific audit. 

(d) Exemption when Federal awards 

expended are less than $500,000. NonFederal entities that expend less than 

$500,000 a year in Federal awards are 

exempt from Federal audit requirements 

for that year, except as noted in 

§ 41.215(a), but records must be 

available for review or audit by 

appropriate officials of the Federal 

agency, pass-through entity, and 

General Accounting Office (GAO). 

(e) Federally Funded Research and 

Development Centers (FFRDC). 

Management of an auditee that owns or 

operates a FFRDC may elect to treat the 

FFRDC as a separate entity for purposes 

of this part. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.205 Basis for determining Federal 

awards expended. 

(a) Determining Federal awards 

expended. The determination of when 

an award is expended should be based 

on when the activity related to the 

award occurs. Generally, the activity 

pertains to events that require the nonFederal entity to comply with laws, 

regulations, and the provisions of 

contracts or grant agreements, such as: 

expenditure/expense transactions 

associated with grants, costreimbursement contracts, cooperative 

agreements, and direct appropriations; 

the disbursement of funds passed 

through to subrecipients; the use of loan 

proceeds under loan and loan guarantee 

programs; the receipt of property; the 

receipt of surplus property; the receipt 

or use of program income; the 

distribution or consumption of food 

commodities; the disbursement of 

amounts entitling the non-Federal entity 

to an interest subsidy; and, the period 

when insurance is in force. 

(b) Loan and loan guarantees (loans). 

Since the Federal Government is at risk 

for loans until the debt is repaid, the 

following guidelines shall be used to 

calculate the value of Federal awards 

expended under loan programs, except 

as noted in paragraphs (c) and (d) of this 

section: 

(1) Value of new loans made or 

received during the fiscal year; plus 

(2) Balance of loans from previous 

years for which the Federal Government 

imposes continuing compliance 

requirements; plus 

(3) Any interest subsidy, cash, or 

administrative cost allowance received. 

(c) Loan and loan guarantees (loans) 

at institutions of higher education. 

When loans are made to students of an 

institution of higher education but the 

institution does not make the loans, 

then only the value of loans made 

during the year shall be considered 

Federal awards expended in that year. 

The balance of loans for previous years 

is not included as Federal awards 

expended because the lender accounts 

for the prior balances. 

(d) Prior loan and loan guarantees 

(loans). Loans, the proceeds of which 

were received and expended in prioryears, are not considered Federal 

awards expended under this part when 

the laws, regulations, and the provisions 

of contracts or grant agreements 

pertaining to such loans impose no 

continuing compliance requirements 

other than to repay the loans. 

(e) Endowment funds. The cumulative 

balance of Federal awards for 

endowment funds, which are federally 

restricted, are considered awards 

expended in each year in which the 

funds are still restricted. 

(f) Free rent. Free rent received by 

itself is not considered a Federal award 

expended under this part. However, free 

rent received as part of an award to 

carry out a Federal program shall be 

included in determining Federal awards 

expended and subject to audit under 

this part. 

(g) Valuing non-cash assistance. 

Federal non-cash assistance, such as 

free rent, food stamps, food 

commodities, donated property, or 

donated surplus property, shall be 

valued at fair market value at the time 

of receipt or the assessed value provided 

by the Federal agency. 

(h) Medicare. Medicare payments to a 

non-Federal entity for providing patient 

care services to Medicare eligible 

individuals are not considered Federal 

awards expended under this part. 

(i) Medicaid. Medicaid payments to a 

subrecipient for providing patient care 

services to Medicaid eligible individuals 

are not considered Federal awards 

expended under this part unless a State 

requires the funds to be treated as 

Federal awards expended because 

reimbursement is on a costreimbursement basis. 

(j) Certain loans provided by the 

National Credit Union Administration. 

For purposes of this part, loans made 

from the National Credit Union Share 

Insurance Fund and the Central 

Liquidity Facility that are funded by 

contributions from insured institutions 

are not considered Federal awards 

expended. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.210 Subrecipient and vendor 

determinations. 

(a) General. An auditee may be a 

recipient, a subrecipient, and a vendor. 

Federal awards expended as a recipient 

or a subrecipient would be subject to 

audit under this part. The payments 

received for goods or services provided 

as a vendor would not be considered 

Federal awards. The guidance in 

paragraphs (b) and (c) of this section 

should be considered in determining 

whether payments constitute a Federal 

award or a payment for goods and 

services. 

(b) Federal award. Characteristics 

indicative of a Federal award received 

by a subrecipient are when the 

organization: 

(1) Determines who is eligible to 

receive what Federal financial 

assistance; 

(2) Has its performance measured 

against whether the objectives of the 

Federal program are met; 

52252 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

(3) Has responsibility for 

programmatic decision making; 

(4) Has responsibility for adherence to 

applicable Federal program compliance 

requirements; and 

(5) Uses the Federal funds to carry out 

a program of the organization as 

compared to providing goods or services 

for a program of the pass-through entity. 

(c) Payment for goods and services. 

Characteristics indicative of a payment 

for goods and services received by a 

vendor are when the organization: 

(1) Provides the goods and services 

within normal business operations; 

(2) Provides similar goods or services 

to many different purchasers; 

(3) Operates in a competitive 

environment; 

(4) Provides goods or services that are 

ancillary to the operation of the Federal 

program; and 

(5) Is not subject to compliance 

requirements of the Federal program. 

(d) Use of judgment in making 

determination. There may be unusual 

circumstances or exceptions to the 

listed characteristics. In making the 

determination of whether a subrecipient 

or vendor relationship exists, the 

substance of the relationship is more 

important than the form of the 

agreement. It is not expected that all of 

the characteristics will be present and 

judgment should be used in determining 

whether an entity is a subrecipient or 

vendor. 

(e) For-profit subrecipient. Since this 

part does not apply to for-profit 

subrecipients, the pass-through entity is 

responsible for establishing 

requirements, as necessary, to ensure 

compliance by for-profit subrecipients. 

The contract with the for-profit 

subrecipient should describe applicable 

compliance requirements and the forprofit subrecipient’s compliance 

responsibility. Methods to ensure 

compliance for Federal awards made to 

for-profit subrecipients may include 

pre-award audits, monitoring during the 

contract, and post-award audits. 

(f) Compliance responsibility for 

vendors. In most cases, the auditee’s 

compliance responsibility for vendors is 

only to ensure that the procurement, 

receipt, and payment for goods and 

services comply with laws, regulations, 

and the provisions of contracts or grant 

agreements. Program compliance 

requirements normally do not pass 

through to vendors. However, the 

auditee is responsible for ensuring 

compliance for vendor transactions, 

which are structured such that the 

vendor is responsible for program 

compliance or the vendor’s records 

must be reviewed to determine program 

compliance. Also, when these vendor 

transactions relate to a major program, 

the scope of the audit shall include 

determining whether these transactions 

are in compliance with laws, 

regulations, and the provisions of 

contracts or grant agreements. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.215 Relation to other audit 

requirements. 

(a) Audit under this part in lieu of 

other audits. An audit made in 

accordance with this part shall be in 

lieu of any financial audit required 

under individual Federal awards. To the 

extent this audit meets a Federal 

agency’s needs, it shall rely upon and 

use such audits. The provisions of this 

part neither limit the authority of 

Federal agencies, including their 

Inspectors General, or GAO to conduct 

or arrange for additional audits (e.g., 

financial audits, performance audits, 

evaluations, inspections, or reviews) nor 

authorize any auditee to constrain 

Federal agencies from carrying out 

additional audits. Any additional audits 

shall be planned and performed in such 

a way as to build upon work performed 

by other auditors. 

(b) Federal agency to pay for 

additional audits. A Federal agency that 

conducts or contracts for additional 

audits shall, consistent with other 

applicable laws and regulations, arrange 

for funding the full cost of such 

additional audits. 

(c) Request for a program to be 

audited as a major program. A Federal 

agency may request an auditee to have 

a particular Federal program audited as 

a major program in lieu of the Federal 

agency conducting or arranging for the 

additional audits. To allow for planning, 

such requests should be made at least 

180 days prior to the end of the fiscal 

year to be audited. The auditee, after 

consultation with its auditor, should 

promptly respond to such request by 

informing the Federal agency whether 

the program would otherwise be audited 

as a major program using the risk-based 

audit approach described in § 41.520 

and, if not, the estimated incremental 

cost. The Federal agency shall then 

promptly confirm to the auditee 

whether it wants the program audited as 

a major program. If the program is to be 

audited as a major program based upon 

this Federal agency request, and the 

Federal agency agrees to pay the full 

incremental costs, then the auditee shall 

have the program audited as a major 

program. A pass-through entity may use 

the provisions of this paragraph for a 

subrecipient. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.220 Frequency of audits. 

Except for the provisions for biennial 

audits provided in paragraphs (a) and 

(b) of this section, audits required by 

this part shall be performed annually. 

Any biennial audit shall cover both 

years within the biennial period. 

(a) A State or local government that is 

required by constitution or statute, in 

effect on January 1, 1987, to undergo its 

audits less frequently than annually, is 

permitted to undergo its audits pursuant 

to this part biennially. This requirement 

must still be in effect for the biennial 

period under audit. 

(b) Any non-profit organization that 

had biennial audits for all biennial 

periods ending between July 1, 1992, 

and January 1, 1995, is permitted to 

undergo its audits pursuant to this part 

biennially. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.225 Sanctions. 

No audit costs may be charged to 

Federal awards when audits required by 

this part have not been made or have 

been made but not in accordance with 

this part. In cases of continued inability 

or unwillingness to have an audit 

conducted in accordance with this part, 

Federal agencies and pass-through 

entities shall take appropriate action 

using sanctions such as: 

(a) Withholding a percentage of 

Federal awards until the audit is 

completed satisfactorily; 

(b) Withholding or disallowing 

overhead costs; 

(c) Suspending Federal awards until 

the audit is conducted; or 

(d) Terminating the Federal award. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.230 Audit costs. 

(a) Allowable costs. Unless prohibited 

by law, the cost of audits made in 

accordance with the provisions of this 

part is allowable charges to Federal 

awards. The charges may be considered 

a direct cost or an allocated indirect 

cost, as determined in accordance with 

the provisions of applicable OMB cost 

principles circulars, the Federal 

Acquisition Regulation (FAR) (48 CFR 

parts 30 and 31), or other applicable 

cost principles or regulations. 

(b) Unallowable costs. A non-Federal 

entity shall not charge the following to 

a Federal award: 

(1) The cost of any audit under the 

Single Audit Act Amendments of 1996 

(31 U.S.C. 7501 et seq.) not conducted 

in accordance with this part. 

(2) The cost of auditing a non-Federal 

entity, which has Federal awards, 

expended of less than $500,000 per year 

and is thereby exempted under 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52253 

§ 41.200(d) of this chapter from having 

an audit conducted under this part. 

However, this does not prohibit a passthrough entity from charging Federal 

awards for the cost of limited scope 

audits to monitor its subrecipients in 

accordance with § 41.400(d)(3), 

provided the subrecipient does not have 

a single audit. For purposes of this part, 

limited scope audits only include 

agreed-upon procedures engagements 

conducted in accordance with either the 

AICPA’s generally accepted auditing 

standards or attestation standards, that 

are paid for and arranged by a passthrough entity and address only one or 

more of the following types of 

compliance requirements: activities 

allowed or unallowed; allowable costs/ 

cost principles; eligibility; matching, 

level of effort, earmarking; and, 

reporting. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.235 Program-specific audits. 

(a) Program-specific audit guide 

available. In many cases, a programspecific audit guide will be available to 

provide specific guidance to the auditor 

with respect to internal control, 

compliance requirements, suggested 

audit procedures, and audit reporting 

requirements. The auditor should 

contact the Office of Inspector General 

of the Federal agency to determine 

whether such a guide is available. When 

a current program-specific audit guide is 

available, the auditor shall follow 

GAGAS and the guide when performing 

a program-specific audit. 

(b) Program-specific audit guide not 

available. (1) When a program-specific 

audit guide is not available, the auditee 

and auditor shall have basically the 

same responsibilities for the Federal 

program as they would have for an audit 

of a major program in a single audit. 

(2) The auditee shall prepare the 

financial statement(s) for the Federal 

program that includes, at a minimum, a 

schedule of expenditures of Federal 

awards for the program and notes that 

describe the significant accounting 

policies used in preparing the schedule, 

a summary schedule of prior audit 

findings consistent with the 

requirements of § 41.315(b), and a 

corrective action plan consistent with 

the requirements of § 41.315(c). 

(3) The auditor shall: 

(i) Perform an audit of the financial 

statement(s) for the Federal program in 

accordance with GAGAS; 

(ii) Obtain an understanding of 

internal control and perform tests of 

internal control over the Federal 

program consistent with the 

requirements § 41.500(c) for a major 

program; 

(iii) Perform procedures to determine 

whether the auditee has complied with 

laws, regulations, and the provisions of 

contracts or grant agreements that could 

have a direct and material effect on the 

Federal program consistent with the 

requirements of § 41.500(d) for a major 

program; and 

(iv) Follow up on prior audit findings, 

perform procedures to assess the 

reasonableness of the summary 

schedule of prior audit findings 

prepared by the auditee, and report, as 

a current year audit finding, when the 

auditor concludes that the summary 

schedule of prior audit findings 

materially misrepresents the status of 

any prior audit finding in accordance 

with the requirements of § 41.500(e). 

(4) The auditor’s report(s) may be in 

the form of either combined or separate 

reports and may be organized differently 

from the manner presented in this 

section. The auditor’s report(s) shall 

state that the audit was conducted in 

accordance with this part and include 

the following: 

(i) An opinion (or disclaimer of 

opinion) as to whether the financial 

statement(s) of the Federal program is 

presented fairly in all material respects 

in conformity with the stated 

accounting policies; 

(ii) A report on internal control 

related to the Federal program, which 

shall describe the scope of testing of 

internal control and the results of the 

tests; 

(iii) A report on compliance which 

includes an opinion (or disclaimer of 

opinion) as to whether the auditee 

complied with laws, regulations, and 

the provisions of contracts or grant 

agreements which could have a direct 

and material effect on the Federal 

program; and 

(iv) A schedule of findings and 

questioned costs for the Federal 

program that includes a summary of the 

auditor’s results relative to the Federal 

program in a format consistent with 

§ 41.505(d)(1) and findings and 

questioned costs consistent with the 

requirements of § 41.505(d)(3). 

(c) Report submission for programspecific audits. (1) The audit shall be 

completed and the reporting required by 

paragraph (c)(2) or (c)(3) of this section 

submitted within the earlier of 30 days 

after receipt of the auditor’s report(s), or 

nine months after the end of the audit 

period, unless a longer period is agreed 

to in advance by the Federal agency that 

provided the funding or a different 

period is specified in a program-specific 

audit guide. (However, for fiscal years 

beginning on or before June 30, 1998, 

the audit shall be completed and the 

required reporting shall be submitted 

within the earlier of 30 days after 

receipt of the auditor’s report(s), or 13 

months after the end of the audit period, 

unless a different period is specified in 

a program-specific audit guide.) Unless 

restricted by law or regulation, the 

auditee shall make report copies 

available for public inspection. 

(2) When a program-specific audit 

guide is available, the auditee shall 

submit to the Federal clearinghouse 

designated by OMB the data collection 

form prepared in accordance with 

§ 41.320(b), as applicable to a programspecific audit, and the reporting 

required by the program-specific audit 

guide to be retained as an archival copy. 

Also, the auditee shall submit to the 

Federal awarding agency or passthrough entity the reporting required by 

the program-specific audit guide. 

(3) When a program-specific audit 

guide is not available, the reporting 

package for a program-specific audit 

shall consist of the financial 

statement(s) of the Federal program, a 

summary schedule of prior audit 

findings, and a corrective action plan as 

described in paragraph (b)(2) of this 

section, and the auditor’s report(s) 

described in paragraph (b)(4) of this 

section. The data collection form 

prepared in accordance with 

§ 41.320(b), as applicable to a programspecific audit, and one copy of this 

reporting package shall be submitted to 

the Federal clearinghouse designated by 

OMB to be retained as an archival copy. 

Also, when the schedule of findings and 

questioned costs disclosed audit 

findings or the summary schedule of 

prior audit findings reported the status 

of any audit findings, the auditee shall 

submit one copy of the reporting 

package to the Federal clearinghouse on 

behalf of the Federal awarding agency, 

or directly to the pass-through entity in 

the case of a subrecipient. Instead of 

submitting the reporting package to the 

pass-through entity, when a 

subrecipient is not required to submit a 

reporting package to the pass-through 

entity, the subrecipient shall provide 

written notification to the pass-through 

entity, consistent with the requirements 

of § 41.320(e)(2). A subrecipient may 

submit a copy of the reporting package 

to the pass-through entity to comply 

with this notification requirement. 

(d) Other sections of this part may 

apply. Program-specific audits are 

subject to § 41.100 through § 41.215(b), 

§ 41.220 through § 41.230, § 41.300 

through § 41.305, § 41.315, § 41.320(f) 

through § 41.320(j), § 41.400 through 

§ 41.405, § 41.510 through § 41.515, and 

other referenced provisions of this part 

unless contrary to the provisions of this 

52254 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

section, a program-specific audit guide, 

or program laws and regulations. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart C—Auditees 

§ 41.300 Auditee responsibilities. 

The auditee shall: 

(a) Identify, in its accounts, all 

Federal awards received and expended 

and the Federal programs under which 

they were received. Federal program 

and award identification shall include, 

as applicable, the CFDA title and 

number, award number and year, name 

of the Federal agency, and name of the 

pass-through entity. 

(b) Maintain internal control over 

Federal programs that provides 

reasonable assurance that the auditee is 

managing Federal awards in compliance 

with laws, regulations, and the 

provisions of contracts or grant 

agreements that could have a material 

effect on each of its Federal programs. 

(c) Comply with laws, regulations, 

and the provisions of contracts or grant 

agreements related to each of its Federal 

programs. 

(d) Prepare appropriate financial 

statements, including the schedule of 

expenditures of Federal awards in 

accordance with § 41.310. 

(e) Ensure that the audits required by 

this part are properly performed and 

submitted when due. When extensions 

to the report submission due date 

required by § 41.320(a) are granted by 

the cognizant or oversight agency for 

audit, promptly notify the Federal 

clearinghouse designated by OMB and 

each pass-through entity providing 

Federal awards of the extension. 

(f) Follow up and take corrective 

action on audit findings, including 

preparation of a summary schedule of 

prior audit findings and a corrective 

action plan in accordance with 

§ 41.315(b) and § 41.315(c), respectively. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.305 Auditor selection. 

(a) Auditor procurement. In procuring 

audit services, auditees shall follow the 

procurement standards prescribed by 

part 43 of this chapter, OMB Circular A–

110 (codified at 2 CFR part 215), 

‘‘Uniform Administrative Requirements 

for Grants and Agreements with 

Institutions of Higher Education, 

Hospitals and Other Non-Profit 

Organizations,’’ or the FAR (48 CFR part 

42), as applicable (OMB Circulars are 

available from the Office of 

Administration, Publications Office, 

room 2200, New Executive Office 

Building, Washington, DC 20503). 

Whenever possible, auditees shall make 

positive efforts to utilize small 

businesses, minority-owned firms, and 

women’s business enterprises, in 

procuring audit services as stated in part 

43 of this chapter, OMB Circular A–110 

(codified at 2 CFR part 215), or the FAR 

(48 CFR part 42), as applicable. In 

requesting proposals for audit services, 

the objectives and scope of the audit 

should be made clear. Factors to be 

considered in evaluating each proposal 

for audit services include the 

responsiveness to the request for 

proposal, relevant experience, 

availability of staff with professional 

qualifications and technical abilities, 

the results of external quality control 

reviews, and price. 

(b) Restriction on auditor preparing 

indirect cost proposals. An auditor who 

prepares the indirect cost proposal or 

cost allocation plan may not also be 

selected to perform the audit required 

by this part when the indirect costs 

recovered by the auditee during the 

prior year exceeded $1 million. This 

restriction applies to the base year used 

in the preparation of the indirect cost 

proposal or cost allocation plan and any 

subsequent years in which the resulting 

indirect cost agreement or cost 

allocation plan is used to recover costs. 

(c) Use of Federal auditors. Federal 

auditors may perform all or part of the 

work required under this part if they 

comply fully with the requirements of 

this part. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.310 Financial statements. 

(a) Financial statements. The auditee 

shall prepare financial statements that 

reflect its financial position, results of 

operations or changes in net assets, and, 

where appropriate, cash flows for the 

fiscal year audited. The financial 

statements shall be for the same 

organizational unit and fiscal year that 

is chosen to meet the requirements of 

this part. However, organization-wide 

financial statements may also include 

departments, agencies, and other 

organizational units that have separate 

audits in accordance with § 41.500(a) 

and prepare separate financial 

statements. 

(b) Schedule of expenditures of 

Federal awards. The auditee shall also 

prepare a schedule of expenditures of 

Federal awards for the period covered 

by the auditee’s financial statements. 

While not required, the auditee may 

choose to provide information requested 

by Federal awarding agencies and passthrough entities to make the schedule 

easier to use. For example, when a 

Federal program has multiple award 

years, the auditee may list the amount 

of Federal awards expended for each 

award year separately. At a minimum, 

the schedule shall: 

(1) List individual Federal programs 

by Federal agency. For Federal programs 

included in a cluster of programs, list 

individual Federal programs within a 

cluster of programs. For R&D, total 

Federal awards expended shall be 

shown either by individual award or by 

Federal agency and major subdivision 

within the Federal agency. For example, 

the National Institutes of Health is a 

major subdivision in the Department of 

Health and Human Services. 

(2) For Federal awards received as a 

subrecipient, the name of the passthrough entity and identifying number 

assigned by the pass-through entity 

shall be included. 

(3) Provide total Federal awards 

expended for each individual Federal 

program and the CFDA number or other 

identifying number when the CFDA 

information is not available. 

(4) Include notes that describe the 

significant accounting policies used in 

preparing the schedule. 

(5) To the extent practical, passthrough entities should identify in the 

schedule the total amount provided to 

subrecipients from each Federal 

program. 

(6) Include, in either the schedule or 

a note to the schedule, the value of the 

Federal awards expended in the form of 

non-cash assistance, the amount of 

insurance in effect during the year, and 

loans or loan guarantees outstanding at 

year-end. While not required, it is 

preferable to present this information in 

the schedule. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.315 Audit findings follow-up. 

(a) General. The auditee is responsible 

for follow-up and corrective action on 

all audit findings. As part of this 

responsibility, the auditee shall prepare 

a summary schedule of prior audit 

findings. The auditee shall also prepare 

a corrective action plan for current year 

audit findings. The summary schedule 

of prior audit findings and the 

corrective action plan shall include the 

reference numbers the auditor assigns to 

audit findings under § 41.510(c). Since 

the summary schedule may include 

audit findings from multiple years, it 

shall include the fiscal year in which 

the finding initially occurred. 

(b) Summary schedule of prior audit 

findings. The summary schedule of 

prior audit findings shall report the 

status of all audit findings included in 

the prior audit’s schedule of findings 

and questioned costs relative to Federal 

awards. The summary schedule shall 

also include audit findings reported in 

the prior audit’s summary schedule of 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52255 

prior audit findings except audit 

findings listed as corrected in 

accordance with paragraph (b)(1) of this 

section, or no longer valid or not 

warranting further action in accordance 

with paragraph (b)(4) of this section. 

(1) When audit findings were fully 

corrected, the summary schedule need 

only list the audit findings and state that 

corrective action was taken. 

(2) When audit findings were not 

corrected or were only partially 

corrected, the summary schedule shall 

describe the planned corrective action 

as well as any partial corrective action 

taken. 

(3) When corrective action taken is 

significantly different from corrective 

action previously reported in a 

corrective action plan or in the Federal 

agency’s or pass-through entity’s 

management decision, the summary 

schedule shall provide an explanation. 

(4) When the auditee believes the 

audit findings are no longer valid or do 

not warrant further action, the reasons 

for this position shall be described in 

the summary schedule. A valid reason 

for considering an audit finding as not 

warranting further action is that all of 

the following have occurred: 

(i) Two years have passed since the 

audit report in which the finding 

occurred was submitted to the Federal 

clearinghouse; 

(ii) The Federal agency or passthrough entity is not currently following 

up with the auditee on the audit 

finding; and 

(iii) A management decision was not 

issued. 

(c) Corrective action plan. At the 

completion of the audit, the auditee 

shall prepare a corrective action plan to 

address each audit finding included in 

the current year auditor’s reports. The 

corrective action plan shall provide the 

name(s) of the contact person(s) 

responsible for corrective action, the 

corrective action planned, and the 

anticipated completion date. If the 

auditee does not agree with the audit 

findings or believes corrective action is 

not required, then the corrective action 

plan shall include an explanation and 

specific reasons. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.320 Report submission. 

(a) General. The audit shall be 

completed and the data collection form 

described in paragraph (b) of this 

section and reporting package described 

in paragraph (c) of this section shall be 

submitted within the earlier of 30 days 

after receipt of the auditor’s report(s), or 

nine months after the end of the audit 

period, unless a longer period is agreed 

to in advance by the cognizant or 

oversight agency for audit. Unless 

restricted by law or regulation, the 

auditee shall make copies available for 

public inspection. 

(b) Data Collection. (1) The auditee 

shall submit a data collection form, 

which states whether the audit was 

completed in accordance with this part 

and provides information about the 

auditee, its Federal programs, and the 

results of the audit. The form shall be 

approved by OMB, available from the 

Federal clearinghouse designated by 

OMB, and include data elements similar 

to those presented in this paragraph. A 

senior level representative of the auditee 

(e.g., State controller, director of 

finance, chief executive officer, or chief 

financial officer) shall sign a statement 

to be included as part of the form 

certifying that: the auditee complied 

with the requirements of this part, the 

form was prepared in accordance with 

this part (and the instructions 

accompanying the form), and the 

information included in the form, in its 

entirety, are accurate and complete. 

(2) The data collection form shall 

include the following data elements: 

(i) The type of report the auditor 

issued on the financial statements of the 

auditee (i.e., unqualified opinion, 

qualified opinion, adverse opinion, or 

disclaimer of opinion). 

(ii) Where applicable, a statement that 

reportable conditions in internal control 

were disclosed by the audit of the 

financial statements and whether any 

such conditions were material 

weaknesses. 

(iii) A statement as to whether the 

audit disclosed any noncompliance, 

which is material to the financial 

statements of the auditee. 

(iv) Where applicable, a statement 

that reportable conditions in internal 

control over major programs were 

disclosed by the audit and whether any 

such conditions were material 

weaknesses. 

(v) The type of report the auditor 

issued on compliance for major 

programs (i.e., unqualified opinion, 

qualified opinion, adverse opinion, or 

disclaimer of opinion). 

(vi) A list of the Federal awarding 

agencies, which will receive a copy of 

the reporting package pursuant to 

§ 41.320(d)(2). 

(vii) A yes or no statement as to 

whether the auditee qualified as a lowrisk auditee under § 41.530. 

(viii) The dollar threshold used to 

distinguish between Type A and Type B 

programs as defined in § 41.520(b). 

(ix) The Catalog of Federal Domestic 

Assistance (CFDA) number for each 

Federal program, as applicable. 

(x) The name of each Federal program 

and identification of each major 

program. Individual programs within a 

cluster of programs should be listed in 

the same level of detail as they are listed 

in the schedule of expenditures of 

Federal awards. 

(xi) The amount of expenditures in 

the schedule of expenditures of Federal 

awards associated with each Federal 

program. 

(xii) For each Federal program, a yes 

or no statement as to whether there are 

audit findings in each of the following 

types of compliance requirements and 

the total amount of any questioned 

costs: 

(A) Activities allowed or unallowed. 

(B) Allowable costs/cost principles. 

(C) Cash management. 

(D) Davis-Bacon Act. 

(E) Eligibility. 

(F) Equipment and real property 

management. 

(G) Matching, level of effort, 

earmarking. 

(H) Period of availability of Federal 

funds. 

(I) Procurement and suspension and 

debarment. 

(J) Program income. 

(K) Real property acquisition and 

relocation assistance. 

(L) Reporting. 

(M) Subrecipient monitoring. 

(N) Special tests and provisions. 

(xiii) Auditee name, employer 

identification number(s), name and title 

of certifying official, telephone number, 

signature, and date. 

(xiv) Auditor name, name and title of 

contact person, auditor address, auditor 

telephone number, signature, and date. 

(xv) Whether the auditee has either a 

cognizant or oversight agency for audit. 

(xvi) The name of the cognizant or 

oversight agency for audit determined in 

accordance with § 41.400(a) and 

§ 41.400(b), respectively. 

(3) Using the information included in 

the reporting package described in 

paragraph (c) of this section, the auditor 

shall complete the applicable sections of 

the form. The auditor shall sign a 

statement to be included as part of the 

data collection form that indicates, at a 

minimum, the source of the information 

included in the form, the auditor’s 

responsibility for the information, that 

the form is not a substitute for the 

reporting package described in 

paragraph (c) of this section, and that 

the content of the form is limited to the 

data elements prescribed by OMB. 

(c) Reporting package. The reporting 

package shall include the: 

(1) Financial statements and schedule 

of expenditures of Federal awards 

discussed in § 41.310(a) and § 41.310(b), 

respectively; 

52256 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

(2) Summary schedule of prior audit 

findings discussed in § 41.315(b); 

(3) Auditor’s report(s) discussed in 

§ 41.505; and 

(4) Corrective action plan discussed in 

§ 41.315(c). 

(d) Submission to clearinghouse. All 

auditees shall submit to the Federal 

clearinghouse designated by OMB the 

data collection form described in 

paragraph (b) of this section and one 

copy of the reporting package described 

in paragraph (c) of this section for: 

(1) The Federal clearinghouse to 

retain as an archival copy; and 

(2) Each Federal awarding agency 

when the schedule of findings and 

questioned costs disclosed audit 

findings relating to Federal awards that 

the Federal awarding agency provided 

directly or the summary schedule of 

prior audit findings reported the status 

of any audit findings relating to Federal 

awards that the Federal awarding 

agency provided directly. 

(e) Additional submission by 

subrecipients. (1) In addition to the 

requirements discussed in paragraph (d) 

of this section, auditees that are also 

subrecipients shall submit to each passthrough entity one copy of the reporting 

package described in paragraph (c) of 

this section for each pass-through entity 

when the schedule of findings and 

questioned costs disclosed audit 

findings relating to Federal awards that 

the pass-through entity provided or the 

summary schedule of prior audit 

findings reported the status of any audit 

findings relating to Federal awards that 

the pass-through entity provided. 

(2) When a subrecipient is not 

required to submit a reporting package 

to a pass-through entity pursuant to 

paragraph (e)(1) of this section, the 

subrecipient shall provide written 

notification to the pass-through entity 

that: an audit of the subrecipient was 

conducted in accordance with this part 

(including the period covered by the 

audit and the name, amount, and CFDA 

number of the Federal award(s) 

provided by the pass-through entity); 

the schedule of findings and questioned 

costs disclosed no audit findings 

relating to the Federal award(s) that the 

pass-through entity provided; and, the 

summary schedule of prior audit 

findings did not report on the status of 

any audit findings relating to the 

Federal award(s) that the pass-through 

entity provided. A subrecipient may 

submit a copy of the reporting package 

described in paragraph (c) of this 

section to a pass-through entity to 

comply with this notification 

requirement. 

(f) Requests for report copies. In 

response to requests by a Federal agency 

or pass-through entity, auditees shall 

submit the appropriate copies of the 

reporting package described in 

paragraph (c) of this section and, if 

requested, a copy of any management 

letters issued by the auditor. 

(g) Report retention requirements. 

Auditees shall keep one copy of the data 

collection form described in paragraph 

(b) of this section and one copy of the 

reporting package described in 

paragraph (c) of this section on file for 

three years from the date of submission 

to the Federal clearinghouse designated 

by OMB. Pass-through entities shall 

keep subrecipients’ submissions on file 

for three years from date of receipt. 

(h) Clearinghouse responsibilities. 

The Federal clearinghouse designated 

by OMB shall distribute the reporting 

packages received in accordance with 

paragraph (d)(2) of this section and 

§ 41.235(c)(3) to applicable Federal 

awarding agencies, maintain a data base 

of completed audits, provide 

appropriate information to Federal 

agencies, and follow up with known 

auditees which have not submitted the 

required data collection forms and 

reporting packages. 

(i) Clearinghouse address. The 

address of the Federal clearinghouse 

currently designated by OMB is Federal 

Audit Clearinghouse, Bureau of the 

Census, 1201 E. 10th Street, 

Jeffersonville, IN 47132. 

(j) Electronic filing. Nothing in this 

part shall preclude electronic 

submissions to the Federal 

clearinghouse in such manner as may be 

approved by OMB. With OMB approval, 

the Federal clearinghouse may pilot test 

methods of electronic submissions. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart D—Federal Agencies and 

Pass-Through Entities 

§ 41.400 Responsibilities. 

(a) Cognizant agency for audit 

responsibilities. Recipients expending 

more than $50 million a year in Federal 

awards shall have a cognizant agency 

for audit. The designated cognizant 

agency for audit shall be the Federal 

awarding agency that provides the 

predominant amount of direct funding 

to a recipient unless OMB makes a 

specific cognizant agency for audit 

assignment. The determination of the 

predominant amount of direct funding 

shall be based upon direct Federal 

awards expended in the recipient’s 

fiscal years ending in 2004, 2009, 2014, 

and every fifth year thereafter. For 

example, audit cognizance for periods 

ending in 2006 through 2010 will be 

determined based on Federal awards 

expended in 2004. (However, for 2001 

through 2005, cognizant agency for 

audit is determined based on the 

predominant amount of direct Federal 

awards expended in the recipient’s 

fiscal year ending in 2000). 

Notwithstanding the manner in which 

audit cognizance is determined, a 

Federal awarding agency with 

cognizance for an auditee may reassign 

cognizance to another Federal awarding 

agency which provides substantial 

direct funding and agrees to be the 

cognizant agency for audit. Within 30 

days after any reassignment, both the 

old and the new cognizant agency for 

audit shall notify the auditee, and, if 

known, the auditor of the reassignment. 

The cognizant agency for audit shall: 

(1) Provide technical audit advice and 

liaison to auditees and auditors. 

(2) Consider auditee requests for 

extensions to the report submission due 

date required by § 41.320(a). The 

cognizant agency for audit may grant 

extensions for good cause. 

(3) Obtain or conduct quality control 

reviews of selected audits made by nonFederal auditors, and provide the 

results, when appropriate, to other 

interested organizations. 

(4) Promptly inform other affected 

Federal agencies and appropriate 

Federal law enforcement officials of any 

direct reporting by the auditee or its 

auditor of irregularities or illegal acts, as 

required by GAGAS or laws and 

regulations. 

(5) Advise the auditor and, where 

appropriate, the auditee of any 

deficiencies found in the audits when 

the deficiencies require corrective 

action by the auditor. When advised of 

deficiencies, the auditee shall work with 

the auditor to take corrective action. If 

corrective action is not taken, the 

cognizant agency for audit shall notify 

the auditor, the auditee, and applicable 

Federal awarding agencies and passthrough entities of the facts and make 

recommendations for follow-up action. 

Major inadequacies or repetitive 

substandard performance by auditors 

shall be referred to appropriate State 

licensing agencies and professional 

bodies for disciplinary action. 

(6) Coordinate, to the extent practical, 

audits or reviews made by or for Federal 

agencies that are in addition to the 

audits made pursuant to this part, so 

that the additional audits or reviews 

build upon audits performed in 

accordance with this part. 

(7) Coordinate a management decision 

for audit findings that affect the Federal 

programs of more than one agency. 

(8) Coordinate the audit work and 

reporting responsibilities among 

auditors to achieve the most costeffective audit. 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52257 

(9) For biennial audits permitted 

under § 41.220, consider auditee 

requests to qualify as a low-risk auditee 

under § 41.530(a). 

(b) Oversight agency for audit 

responsibilities. An auditee, which does 

not have a designated cognizant agency 

for audit, will be under the general 

oversight of the Federal agency 

determined in accordance with § 41.105. 

The oversight agency for audit: 

(1) Shall provide technical advice to 

auditees and auditors as requested. 

(2) May assume all or some of the 

responsibilities normally performed by 

a cognizant agency for audit. 

(c) Federal awarding agency 

responsibilities. The Federal awarding 

agency shall perform the following for 

the Federal awards it makes: 

(1) Identify Federal awards made by 

informing each recipient of the CFDA 

title and number, award name and 

number, award year, and if the award is 

for R&D. When some of this information 

is not available, the Federal agency shall 

provide information necessary to clearly 

describe the Federal award. 

(2) Advise recipients of requirements 

imposed on them by Federal laws, 

regulations, and the provisions of 

contracts or grant agreements. 

(3) Ensure that audits are completed 

and reports are received in a timely 

manner and in accordance with the 

requirements of this part. 

(4) Provide technical advice and 

counsel to auditees and auditors as 

requested. 

(5) Issue a management decision on 

audit findings within six months after 

receipt of the audit report and ensure 

that the recipient takes appropriate and 

timely corrective action. 

(6) Assign a person responsible for 

providing annual updates of the 

compliance supplement to OMB. 

(d) Pass-through entity 

responsibilities. A pass-through entity 

shall perform the following for the 

Federal awards it makes: 

(1) Identify Federal awards made by 

informing each subrecipient of CFDA 

title and number, award name and 

number, award year, if the award is 

R&D, and name of Federal agency. 

When some of this information is not 

available, the pass-through entity shall 

provide the best information available to 

describe the Federal award. 

(2) Advise subrecipients of 

requirements imposed on them by 

Federal laws, regulations, and the 

provisions of contracts or grant 

agreements as well as any supplemental 

requirements imposed by the passthrough entity. 

(3) Monitor the activities of 

subrecipients as necessary to ensure that 

Federal awards are used for authorized 

purposes in compliance with laws, 

regulations, and the provisions of 

contracts or grant agreements and that 

performance goals are achieved. 

(4) Ensure that subrecipients 

expending $500,000 or more in Federal 

awards during the subrecipient’s fiscal 

year have met the audit requirements of 

this part for that fiscal year. 

(5) Issue a management decision on 

audit findings within six months after 

receipt of the subrecipient’s audit report 

and ensure that the subrecipient takes 

appropriate and timely corrective 

action. 

(6) Consider whether subrecipient 

audits necessitate adjustment of the 

pass-through entity’s own records. 

(7) Require each subrecipient to 

permit the pass-through entity and 

auditors to have access to the records 

and financial statements as necessary 

for the pass-through entity to comply 

with this part. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.405 Management decision. 

(a) General. The management decision 

shall clearly state whether or not the 

audit finding is sustained, the reasons 

for the decision, and the expected 

auditee action to repay disallowed costs, 

make financial adjustments, or take 

other action. If the auditee has not 

completed corrective action, a timetable 

for follow-up should be given. Prior to 

issuing the management decision, the 

Federal agency or pass-through entity 

may request additional information or 

documentation from the auditee, 

including a request for auditor 

assurance related to the documentation, 

as a way of mitigating disallowed costs. 

The management decision should 

describe any appeal process available to 

the auditee. 

(b) Federal agency. As provided in 

§ 41.400(a)(7), the cognizant agency for 

audit shall be responsible for 

coordinating a management decision for 

audit findings that affect the programs 

of more than one Federal agency. As 

provided in § 41.400(c)(5), a Federal 

awarding agency is responsible for 

issuing a management decision for 

findings that relate to Federal awards it 

makes to recipients. Alternate 

arrangements may be made on a caseby-case basis by agreement among the 

Federal agencies concerned. 

(c) Pass-through entity. As provided 

in § 41.400(d)(5), the pass-through entity 

shall be responsible for making the 

management decision for audit findings 

that relate to Federal awards it makes to 

subrecipients. 

(d) Time requirements. The entity 

responsible for making the management 

decision shall do so within six months 

of receipt of the audit report. Corrective 

action should be initiated within six 

months after receipt of the audit report 

and proceed as rapidly as possible. 

(e) Reference numbers. Management 

decisions shall include the reference 

numbers the auditor assigned to each 

audit finding in accordance with 

§ 41.510(c). 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart E—Auditors 

§ 41.500 Scope of audit. 

(a) General. The audit shall be 

conducted in accordance with GAGAS. 

The audit shall cover the entire 

operations of the auditee; or, at the 

option of the auditee, such audit shall 

include a series of audits that cover 

departments, agencies, and other 

organizational units which expended or 

otherwise administered Federal awards 

during such fiscal year, provided that 

each such audit shall encompass the 

financial statements and schedule of 

expenditures of Federal awards for each 

such department, agency, and other 

organizational unit, which shall be 

considered to be a non-Federal entity. 

The financial statements and schedule 

of expenditures of Federal awards shall 

be for the same fiscal year. 

(b) Financial statements. The auditor 

shall determine whether the financial 

statements of the auditee are presented 

fairly in all material respects in 

conformity with generally accepted 

accounting principles. The auditor shall 

also determine whether the schedule of 

expenditures of Federal awards is 

presented fairly in all material respects 

in relation to the auditee’s financial 

statements taken as a whole. 

(c) Internal control. (1) In addition to 

the requirements of GAGAS, the auditor 

shall perform procedures to obtain an 

understanding of internal control over 

Federal programs sufficient to plan the 

audit to support a low assessed level of 

control risk for major programs. 

(2) Except as provided in paragraph 

(c)(3) of this section, the auditor shall: 

(i) Plan the testing of internal control 

over major programs to support a low 

assessed level of control risk for the 

assertions relevant to the compliance 

requirements for each major program; 

and 

(ii) Perform testing of internal control 

as planned in paragraph (c)(2)(i) of this 

section. 

(3) When internal control over some 

or all of the compliance requirements 

for a major program are likely to be 

ineffective in preventing or detecting 

noncompliance, the planning and 

performing of testing described in 

52258 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

paragraph (c)(2) of this section are not 

required for those compliance 

requirements. However, the auditor 

shall report a reportable condition 

(including whether any such condition 

is a material weakness) in accordance 

with § 41.510, assess the related control 

risk at the maximum, and consider 

whether additional compliance tests are 

required because of ineffective internal 

control. 

(d) Compliance. (1) In addition to the 

requirements of GAGAS, the auditor 

shall determine whether the auditee has 

complied with laws, regulations, and 

the provisions of contracts or grant 

agreements that may have a direct and 

material effect on each of its major 

programs. 

(2) The principal compliance 

requirements applicable to most Federal 

programs and the compliance 

requirements of the largest Federal 

programs are included in the 

compliance supplement. 

(3) For the compliance requirements 

related to Federal programs contained in 

the compliance supplement, an audit of 

these compliance requirements will 

meet the requirements of this part. 

Where there have been changes to the 

compliance requirements and the 

changes are not reflected in the 

compliance supplement, the auditor 

shall determine the current compliance 

requirements and modify the audit 

procedures accordingly. For those 

Federal programs not covered in the 

compliance supplement, the auditor 

should use the types of compliance 

requirements contained in the 

compliance supplement as guidance for 

identifying the types of compliance 

requirements to test, and determine the 

requirements governing the Federal 

program by reviewing the provisions of 

contracts and grant agreements and the 

laws and regulations referred to in such 

contracts and grant agreements. 

(4) The compliance testing shall 

include tests of transactions and such 

other auditing procedures necessary to 

provide the auditor sufficient evidence 

to support an opinion on compliance. 

(e) Audit follow-up. The auditor shall 

follow-up on prior audit findings, 

perform procedures to assess the 

reasonableness of the summary 

schedule of prior audit findings 

prepared by the auditee in accordance 

with § 41.315(b), and report, as a current 

year audit finding, when the auditor 

concludes that the summary schedule of 

prior audit findings materially 

misrepresents the status of any prior 

audit finding. The auditor shall perform 

audit follow-up procedures regardless of 

whether a prior audit finding relates to 

a major program in the current year. 

(f) Data Collection Form. As required 

in § 41.320(b)(3), the auditor shall 

complete and sign specified sections of 

the data collection form. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.505 Audit reporting. 

The auditor’s report(s) may be in the 

form of either combined or separate 

reports and may be organized differently 

from the manner presented in this 

section. The auditor’s report(s) shall 

state that the audit was conducted in 

accordance with this part and include 

the following: 

(a) An opinion (or disclaimer of 

opinion) as to whether the financial 

statements are presented fairly in all 

material respects in conformity with 

generally accepted accounting 

principles and an opinion (or disclaimer 

of opinion) as to whether the schedule 

of expenditures of Federal awards is 

presented fairly in all material respects 

in relation to the financial statements 

taken as a whole. 

(b) A report on internal control related 

to the financial statements and major 

programs. This report shall describe the 

scope of testing of internal control and 

the results of the tests, and, where 

applicable, refer to the separate 

schedule of findings and questioned 

costs described in paragraph (d) of this 

section. 

(c) A report on compliance with laws, 

regulations, and the provisions of 

contracts or grant agreements, 

noncompliance with which could have 

a material effect on the financial 

statements. This report shall also 

include an opinion (or disclaimer of 

opinion) as to whether the auditee 

complied with laws, regulations, and 

the provisions of contracts or grant 

agreements which could have a direct 

and material effect on each major 

program, and, where applicable, refer to 

the separate schedule of findings and 

questioned costs described in paragraph 

(d) of this section. 

(d) A schedule of findings and 

questioned costs, which shall include 

the following three components: 

(1) A summary of the auditor’s results, 

which shall include: 

(i) The type of report the auditor 

issued on the financial statements of the 

auditee (i.e., unqualified opinion, 

qualified opinion, adverse opinion, or 

disclaimer of opinion); 

(ii) Where applicable, a statement that 

reportable conditions in internal control 

were disclosed by the audit of the 

financial statements and whether any 

such conditions were material 

weaknesses; 

(iii) A statement as to whether the 

audit disclosed any noncompliance, 

which is material to the financial 

statements of the auditee; 

(iv) Where applicable, a statement 

that reportable conditions in internal 

control over major programs were 

disclosed by the audit and whether any 

such conditions were material 

weaknesses; 

(v) The type of report the auditor 

issued on compliance for major 

programs (i.e., unqualified opinion, 

qualified opinion, adverse opinion, or 

disclaimer of opinion); 

(vi) A statement as to whether the 

audit disclosed any audit findings, 

which the auditor is required to report 

under § 41.510(a); 

(vii) An identification of major 

programs; 

(viii) The dollar threshold used to 

distinguish between Type A and Type B 

programs, as described in § 41.520(b); 

and 

(ix) A statement as to whether the 

auditee qualified as a low-risk auditee 

under § 41.530. 

(2) Findings relating to the financial 

statements, which are required to be 

reported in accordance with GAGAS. 

(3) Findings and questioned costs for 

Federal awards which shall include 

audit findings as defined in § 41.510(a). 

(i) Audit findings (e.g., internal 

control findings, compliance findings, 

questioned costs, or fraud) which relate 

to the same issue should be presented 

as a single audit finding. Where 

practical, audit findings should be 

organized by Federal agency or passthrough entity. 

(ii) Audit findings which relate to 

both the financial statements and 

Federal awards, as reported under 

paragraphs (d)(2) and (d)(3) of this 

section, respectively, should be reported 

in both sections of the schedule. 

However, the reporting in one section of 

the schedule may be in summary form 

with a reference to a detailed reporting 

in the other section of the schedule. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.510 Audit findings. 

(a) Audit findings reported. The 

auditor shall report the following as 

audit findings in a schedule of findings 

and questioned costs: 

(1) Reportable conditions in internal 

control over major programs. The 

auditor’s determination of whether a 

deficiency in internal control is a 

reportable condition for the purpose of 

reporting an audit finding is in relation 

to a type of compliance requirement for 

a major program or an audit objective 

identified in the compliance 

supplement. The auditor shall identify 

reportable conditions, which are 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52259 

individually or cumulatively material 

weaknesses. 

(2) Material noncompliance with the 

provisions of laws, regulations, 

contracts, or grant agreements related to 

a major program. The auditor’s 

determination of whether a 

noncompliance with the provisions of 

laws, regulations, contracts, or grant 

agreements is material for the purpose 

of reporting an audit finding is in 

relation to a type of compliance 

requirement for a major program or an 

audit objective identified in the 

compliance supplement. 

(3) Known questioned costs, which 

are greater than $10,000, for a type of 

compliance requirement for a major 

program. Known questioned costs are 

those specifically identified by the 

auditor. In evaluating the effect of 

questioned costs on the opinion on 

compliance, the auditor considers the 

best estimate of total costs questioned 

(likely questioned costs), not just the 

questioned costs specifically identified 

(known questioned costs). The auditor 

shall also report known questioned 

costs when likely questioned costs are 

greater than $10,000 for a type of 

compliance requirement for a major 

program. In reporting questioned costs, 

the auditor shall include information to 

provide proper perspective for judging 

the prevalence and consequences of the 

questioned costs. 

(4) Known questioned costs, which 

are greater than $10,000, for a Federal 

program, which is not audited as a 

major program. Except for audit followup, the auditor is not required under 

this part to perform audit procedures for 

such a Federal program; therefore, the 

auditor will normally not find 

questioned costs for a program, which is 

not audited as a major program. 

However, if the auditor does become 

aware of questioned costs for a Federal 

program which is not audited as a major 

program (e.g., as part of audit follow-up 

or other audit procedures) and the 

known questioned costs are greater than 

$10,000, then the auditor shall report 

this as an audit finding. 

(5) The circumstances concerning 

why the auditor’s report on compliance 

for major programs is other than an 

unqualified opinion, unless such 

circumstances are otherwise reported as 

audit findings in the schedule of 

findings and questioned costs for 

Federal awards. 

(6) Known fraud affecting a Federal 

award, unless such fraud is otherwise 

reported as an audit finding in the 

schedule of findings and questioned 

costs for Federal awards. This paragraph 

does not require the auditor to make an 

additional reporting when the auditor 

confirms that the fraud was reported 

outside of the auditor’s reports under 

the direct reporting requirements of 

GAGAS. 

(7) Instances where the results of 

audit follow-up procedures disclosed 

that the summary schedule of prior 

audit findings prepared by the auditee 

in accordance with § 41.315(b) 

materially misrepresents the status of 

any prior audit finding. 

(b) Audit finding detail. Audit 

findings shall be presented in sufficient 

detail for the auditee to prepare a 

corrective action plan and take 

corrective action and for Federal 

agencies and pass-through entities to 

arrive at a management decision. The 

following specific information shall be 

included, as applicable, in audit 

findings: 

(1) Federal program and specific 

Federal award identification including 

the CFDA title and number, Federal 

award number and year, name of 

Federal agency, and name of the 

applicable pass-through entity. When 

information, such as the CFDA title and 

number or Federal award number, is not 

available, the auditor shall provide the 

best information available to describe 

the Federal award. 

(2) The criteria or specific 

requirement upon which the audit 

finding is based, including statutory, 

regulatory, or other citation. 

(3) The condition found, including 

facts that support the deficiency 

identified in the audit finding. 

(4) Identification of questioned costs 

and how they were computed. 

(5) Information to provide proper 

perspective for judging the prevalence 

and consequences of the audit findings, 

such as whether the audit findings 

represent an isolated instance or a 

systemic problem. Where appropriate, 

instances identified shall be related to 

the universe and the number of cases 

examined and be quantified in terms of 

dollar value. 

(6) The possible asserted effect to 

provide sufficient information to the 

auditee and Federal agency, or passthrough entity in the case of a 

subrecipient, to permit them to 

determine the cause and effect to 

facilitate prompt and proper corrective 

action. 

(7) Recommendations to prevent 

future occurrences of the deficiency 

identified in the audit finding. 

(8) Views of responsible officials of 

the auditee when there is disagreement 

with the audit findings, to the extent 

practical. 

(c) Reference numbers. Each audit 

finding in the schedule of findings and 

questioned costs shall include a 

reference number to allow for easy 

referencing of the audit findings during 

follow-up. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.515 Audit working papers. 

(a) Retention of working papers. The 

auditor shall retain working papers and 

reports for a minimum of three years 

after the date of issuance of the auditor’s 

report(s) to the auditee, unless the 

auditor is notified in writing by the 

cognizant agency for audit, oversight 

agency for audit, or pass-through entity 

to extend the retention period. When 

the auditor is aware that the Federal 

awarding agency, pass-through entity, or 

auditee is contesting an audit finding, 

the auditor shall contact the parties 

contesting the audit finding for 

guidance prior to destruction of the 

working papers and reports. 

(b) Access to working papers. Audit 

working papers shall be made available 

upon request to the cognizant or 

oversight agency for audit or its 

designee, a Federal agency providing 

direct or indirect funding, or GAO at the 

completion of the audit, as part of a 

quality review, to resolve audit findings, 

or to carry out oversight responsibilities 

consistent with the purposes of this 

part. Access to working papers includes 

the right of Federal agencies to obtain 

copies of working papers, as is 

reasonable and necessary. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.520 Major program determination. 

(a) General. The auditor shall use a 

risk-based approach to determine which 

Federal programs are major programs. 

This risk-based approach shall include 

consideration of: Current and prior 

audit experience, oversight by Federal 

agencies and pass-through entities, and 

the inherent risk of the Federal program. 

The process in paragraphs (b) through 

(i) of this section shall be followed. 

(b) Step 1. (1) The auditor shall 

identify the larger Federal programs, 

which shall be labeled Type A 

programs. Type A programs are defined 

as Federal programs with Federal 

awards expended during the audit 

period exceeding the larger of: 

(i) $300,000 or three percent (.03) of 

total Federal awards expended in the 

case of an auditee for which total 

Federal awards expended equal or 

exceed $300,000 but are less than or 

equal to $100 million. 

(ii) $3 million or three-tenths of one 

percent (.003) of total Federal awards 

expended in the case of an auditee for 

which total Federal awards expended 

exceed $100 million but are less than or 

equal to $10 billion. 

52260 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

(iii) $30 million or 15 hundredths of 

one percent (.0015) of total Federal 

awards expended in the case of an 

auditee for which total Federal awards 

expended exceed $10 billion. 

(2) Federal programs not labeled Type 

A under paragraph (b)(1) of this section 

shall be labeled Type B programs. 

(3) The inclusion of large loan and 

loan guarantees (loans) should not result 

in the exclusion of other programs as 

Type A programs. When a Federal 

program providing loans significantly 

affects the number or size of Type A 

programs, the auditor shall consider this 

Federal program as a Type A program 

and exclude its values in determining 

other Type A programs. 

(4) For biennial audits permitted 

under § 41.220, the determination of 

Type A and Type B programs shall be 

based upon the Federal awards 

expended during the two-year period. 

(c) Step 2. (1) The auditor shall 

identify Type A programs, which are 

low-risk. For a Type A program to be 

considered low-risk, it shall have been 

audited as a major program in at least 

one of the two most recent audit periods 

(in the most recent audit period in the 

case of a biennial audit), and, in the 

most recent audit period, it shall have 

had no audit findings under § 41.510(a). 

However, the auditor may use judgment 

and consider that audit findings from 

questioned costs under § 41.510(a)(3) 

and § 41.510(a)(4), fraud under 

§ 41.510(a)(6), and audit follow-up for 

the summary schedule of prior audit 

findings under § 41.510(a)(7) do not 

preclude the Type A program from 

being low-risk. The auditor shall 

consider: the criteria in § 41.525(c), 

§ 41.525(d)(1), § 41.525(d)(2), and 

§ 41.525(d)(3); the results of audit 

follow-up; whether any changes in 

personnel or systems affecting a Type A 

program have significantly increased 

risk; and apply professional judgment in 

determining whether a Type A program 

is low-risk. 

(2) Notwithstanding paragraph (c)(1) 

of this section, OMB may approve a 

Federal awarding agency’s request that 

a Type A program at certain recipients 

may not be considered low-risk. For 

example, it may be necessary for a large 

Type A program to be audited as major 

each year at particular recipients to 

allow the Federal agency to comply 

with the Government Management 

Reform Act of 1994 (31 U.S.C. 3515). 

The Federal agency shall notify the 

recipient and, if known, the auditor at 

least 180 days prior to the end of the 

fiscal year to be audited of OMB’s 

approval. 

(d) Step 3. (1) The auditor shall 

identify Type B programs, which are 

high-risk, using professional judgment 

and the criteria in § 41.525. However, 

should the auditor select Option 2 

under Step 4 (paragraph (e)(2)(i)(B) of 

this section), the auditor is not required 

to identify more high-risk Type B 

programs than the number of low-risk 

Type A programs. Except for known 

reportable conditions in internal control 

or compliance problems as discussed in 

§ 41.525(b)(1), § 41.525(b)(2), and 

§ 41.525(c)(1), a single criteria in 

§ 41.525 would seldom cause a Type B 

program to be considered high-risk. 

(2) The auditor is not expected to 

perform risk assessments on relatively 

small Federal programs. Therefore, the 

auditor is only required to perform risk 

assessments on Type B programs that 

exceed the larger of: 

(i) $100,000 or three-tenths of one 

percent (.003) of total Federal awards 

expended when the auditee has less 

than or equal to $100 million in total 

Federal awards expended. 

(ii) $300,000 or three-hundredths of 

one percent (.0003) of total Federal 

awards expended when the auditee has 

more than $100 million in total Federal 

awards expended. 

(e) Step 4. At a minimum, the auditor 

shall audit all of the following as major 

programs: 

(1) All Type A programs, except the 

auditor may exclude any Type A 

programs identified as low-risk under 

Step 2 (paragraph (c)(1) of this section). 

(2) (i) High-risk Type B programs as 

identified under either of the following 

two options: 

(A) Option 1. At least one half of the 

Type B programs identified as high-risk 

under Step 3 (paragraph (d) of this 

section), except this paragraph 

(e)(2)(i)(A) does not require the auditor 

to audit more high-risk Type B programs 

than the number of low-risk Type A 

programs identified as low-risk under 

Step 2. 

(B) Option 2. One high-risk Type B 

program for each Type A program 

identified as low-risk under Step 2. 

(ii) When identifying which high-risk 

Type B programs to audit as major 

under either Option 1 or 2 in paragraph 

(e)(2)(i)(A) or (B) of this section, the 

auditor is encouraged to use an 

approach which provides an 

opportunity for different high-risk Type 

B programs to be audited as major over 

a period of time. 

(3) Such additional programs as may 

be necessary to comply with the 

percentage of coverage rule discussed in 

paragraph (f) of this section. This 

paragraph (e)(3) may require the auditor 

to audit more programs as major than 

the number of Type A programs. 

(f) Percentage of coverage rule. The 

auditor shall audit as major programs 

Federal programs with Federal awards 

expended that, in the aggregate, 

encompass at least 50 percent of total 

Federal awards expended. If the auditee 

meets the criteria in § 41.530 for a lowrisk auditee, the auditor need only audit 

as major programs Federal programs 

with Federal awards expended that, in 

the aggregate, encompass at least 25 

percent of total Federal awards 

expended. 

(g) Documentation of risk. The auditor 

shall document in the working papers 

the risk analysis process used in 

determining major programs. 

(h) Auditor’s judgment. When the 

major program determination was 

performed and documented in 

accordance with this part, the auditor’s 

judgment in applying the risk-based 

approach to determine major programs 

shall be presumed correct. Challenges 

by Federal agencies and pass-through 

entities shall only be for clearly 

improper use of the guidance in this 

part. However, Federal agencies and 

pass-through entities may provide 

auditors guidance about the risk of a 

particular Federal program and the 

auditor shall consider this guidance in 

determining major programs in audits 

not yet completed. 

(i) Deviation from use of risk criteria. 

For first-year audits, the auditor may 

elect to determine major programs as all 

Type A programs plus any Type B 

programs as necessary to meet the 

percentage of coverage rule discussed in 

paragraph (f) of this section. Under this 

option, the auditor would not be 

required to perform the procedures 

discussed in paragraphs (c), (d), and (e) 

of this section. 

(1) A first-year audit is the first year 

the entity is audited under this part or 

the first year of a change of auditors. 

(2) To ensure that a frequent change 

of auditors would not preclude audit of 

high-risk Type B programs, this election 

for first-year audits may not be used by 

an auditee more than once in every 

three years. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.525 Criteria for Federal program risk. 

(a) General. The auditor’s 

determination should be based on an 

overall evaluation of the risk of 

noncompliance occurring, which could 

be material to the Federal program. The 

auditor shall use auditor judgment and 

consider criteria, such as described in 

paragraphs (b), (c), and (d) of this 

section, to identify risk in Federal 

programs. Also, as part of the risk 

analysis, the auditor may wish to 

discuss a particular Federal program 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52261 

with auditee management and the 

Federal agency or pass-through entity. 

(b) Current and prior audit 

experience. (1) Weaknesses in internal 

control over Federal programs would 

indicate higher risk. Consideration 

should be given to the control 

environment over Federal programs and 

such factors as the expectation of 

management’s adherence to applicable 

laws and regulations and the provisions 

of contracts and grant agreements and 

the competence and experience of 

personnel who administer the Federal 

programs. 

(i) A Federal program administered 

under multiple internal control 

structures may have higher risk. When 

assessing risk in a large single audit, the 

auditor shall consider whether 

weaknesses are isolated in a single 

operating unit (e.g., one college campus) 

or pervasive throughout the entity. 

(ii) When significant parts of a Federal 

program are passed through to 

subrecipients, a weak system for 

monitoring subrecipients would 

indicate higher risk. 

(iii) The extent to which computer 

processing is used to administer Federal 

programs, as well as the complexity of 

that processing, should be considered 

by the auditor in assessing risk. New 

and recently modified computer 

systems may also indicate risk. 

(2) Prior audit findings would 

indicate higher risk, particularly when 

the situations identified in the audit 

findings could have a significant impact 

on a Federal program or have not been 

corrected. 

(3) Federal programs not recently 

audited as major programs may be of 

higher risk than Federal programs 

recently audited as major programs 

without audit findings. 

(c) Oversight exercised by Federal 

agencies and pass-through entities. (1) 

Oversight exercised by Federal agencies 

or pass-through entities could indicate 

risk. For example, recent monitoring or 

other reviews performed by an oversight 

entity, which disclosed no significant 

problems, would indicate lower risk. 

However, monitoring which disclosed 

significant problems would indicate 

higher risk. 

(2) Federal agencies, with the 

concurrence of OMB, may identify 

Federal programs, which are higher risk. 

OMB plans to provide this identification 

in the compliance supplement. 

(d) Inherent risk of the Federal 

program. (1) The nature of a Federal 

program may indicate risk. 

Consideration should be given to the 

complexity of the program and the 

extent to which the Federal program 

contracts for goods and services. For 

example, Federal programs that disburse 

funds through third party contracts or 

have eligibility criteria may be of higher 

risk. Federal programs primarily 

involving staff payroll costs may have a 

high-risk for time and effort reporting, 

but otherwise be at low-risk. 

(2) The phase of a Federal program in 

its life cycle at the Federal agency may 

indicate risk. For example, a new 

Federal program with new or interim 

regulations may have higher risk than 

an established program with time-tested 

regulations. Also, significant changes in 

Federal programs, laws, regulations, or 

the provisions of contracts or grant 

agreements may increase risk. 

(3) The phase of a Federal program in 

its life cycle at the auditee may indicate 

risk. For example, during the first and 

last years that an auditee participates in 

a Federal program, the risk may be 

higher due to start-up or closeout of 

program activities and staff. 

(4) Type B programs with larger 

Federal awards expended would be of 

higher risk than programs with 

substantially smaller Federal awards 

expended. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 41.530 Criteria for a low-risk auditee. 

An auditee, which meets all of the 

following conditions for each of the 

preceding two years (or, in the case of 

biennial audits, preceding two audit 

periods), shall qualify as a low-risk 

auditee and be eligible for reduced audit 

coverage in accordance with § 41.520: 

(a) Single audits were performed on 

an annual basis in accordance with the 

provisions of this part. A non-Federal 

entity that has biennial audits does not 

qualify as a low-risk auditee, unless 

agreed to in advance by the cognizant or 

oversight agency for audit. 

(b) The auditor’s opinions on the 

financial statements and the schedule of 

expenditures of Federal awards were 

unqualified. However, the cognizant or 

oversight agency for audit may judge 

that an opinion qualification does not 

affect the management of Federal 

awards and provide a waiver. 

(c) There were no deficiencies in 

internal control, which were identified 

as material weaknesses under the 

requirements of GAGAS. However, the 

cognizant or oversight agency for audit 

may judge that any identified material 

weaknesses do not affect the 

management of Federal awards and 

provide a waiver. 

(d) None of the Federal programs had 

audit findings from any of the following 

in either of the preceding two years (or, 

in the case of biennial audits, preceding 

two audit periods) in which they were 

classified as Type A programs: 

(1) Internal control deficiencies which 

were identified as material weaknesses; 

(2) Noncompliance with the 

provisions of laws, regulations, 

contracts, or grant agreements which 

have a material effect on the Type A 

program; or 

(3) Known or likely questioned costs 

that exceed five percent of the total 

Federal awards expended for a Type A 

program during the year. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Appendix A to Part 41—Data Collection 

Form (Form SF–SAC) 

Note: Data Collection Form SF–SAC and 

instructions for its completion may be 

obtained from the following Web page: 

http://harvester.census.gov/fac/collect/ 

sfsac_01.pdf. It is also available from the 

address provided in § 41.320(i). 

Appendix B to Part 41—OMB Circular 

A–133 Compliance Supplement 

Note: OMB Circular A–133 Compliance is 

available on the OMB home page at http:// 

www.whitehouse.gov/ omb/grants/ 

grants_circulars.html. 

■ 2. Part 49 is added to read as follows: 

PART 49—UNIFORM ADMINISTRATIVE 

REQUIREMENTS FOR GRANTS AND 

AGREEMENTS WITH INSTITUTIONS 

OF HIGHER EDUCATION, HOSPITALS, 

AND OTHER NON-PROFIT 

ORGANIZATIONS 

Subpart A—General 

Sec. 

49.1 Purpose. 

49.2 Definitions. 

49.3 Effect on other issuances. 

49.4 Deviations. 

49.5 Subawards. 

Subpart B—Pre-Award Requirements 

49.10 Purpose. 

49.11 Pre-award policies. 

49.12 Forms for applying for Federal 

assistance. 

49.13 Debarment and suspension. 

49.14 Special award conditions. 

49.15 Metric system of measurement. 

49.16 Resource Conservation and Recovery 

Act. 

49.17 Certifications and representations. 

Subpart C—Post-Award Requirements 

Financial and Program Management 

49.20 Purpose of financial and program 

management. 

49.21 Standards for financial management 

systems. 

49.22 Payment. 

49.23 Cost sharing or matching. 

49.24 Program income. 

49.25 Revision of budget and program 

plans. 

49.26 Non-Federal audits. 

49.27 Allowable costs. 

49.28 Period of availability of funds. 

52262 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

49.29 Conditional exemptions. 

Property Standards 

49.30 Purpose of property standards. 

49.31 Insurance coverage. 

49.32 Real property. 

49.33 Federally-owned and exempt 

property. 

49.34 Equipment. 

49.35 Supplies and other expendable 

property. 

49.36 Intangible property. 

49.37 Property trust relationship. 

Procurement Standards 

49.40 Purpose of procurement standards. 

49.41 Recipient responsibilities. 

49.42 Codes of conduct. 

49.43 Competition. 

49.44 Procurement procedures. 

49.45 Cost and price analysis. 

49.46 Procurement records. 

49.47 Contract administration. 

49.48 Contract provisions. 

Reports and Records 

49.50 Purpose of reports and records. 

49.51 Monitoring and reporting program 

performance. 

49.52 Financial reporting. 

49.53 Retention and access requirements for 

records. 

Termination and Enforcement 

49.60 Purpose of termination and 

enforcement. 

49.61 Termination. 

49.62 Enforcement. 

Subpart D—After-the-Award Requirements 

49.70 Purpose. 

49.71 Closeout procedures. 

49.72 Subsequent adjustments and 

continuing responsibilities. 

49.73 Collection of amounts due. 

Appendix A to Part 49—Contract Provisions 

Authority: 5 U.S.C. 301; 38 U.S.C. 501, 

OMB Circular A–110 (2 CFR part 215), and 

as noted in specific sections. 

Subpart A—General 

§ 49.1 Purpose. 

This part establishes uniform 

administrative requirements for Federal 

grants and agreements awarded to 

institutions of higher education, 

hospitals, and other non-profit 

organizations. Federal awarding 

agencies shall not impose additional or 

inconsistent requirements, except as 

provided in §§ 49.4, and 49.14 or unless 

specifically required by Federal statute 

or executive order. Non-profit 

organizations that implement Federal 

programs for the States are also subject 

to State requirements. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.2 Definitions. 

(a) Accrued expenditures means the 

charges incurred by the recipient during 

a given period requiring the provision of 

funds for: 

(1) Goods and other tangible property 

received; 

(2) Services performed by employees, 

contractors, subrecipients, and other 

payees; and, 

(3) Other amounts becoming owed 

under programs for which no current 

services or performance is required. 

(b) Accrued income means the sum of: 

(1) Earnings during a given period 

from: 

(i) Services performed by the 

recipient, and 

(ii) Goods and other tangible property 

delivered to purchasers, and 

(2) Amounts becoming owed to the 

recipient for which no current services 

or performance is required by the 

recipient. 

(c) Acquisition cost of equipment 

means the net invoice price of the 

equipment, including the cost of 

modifications, attachments, accessories, 

or auxiliary apparatus necessary to 

make the property usable for the 

purpose for which it was acquired. 

Other charges, such as the cost of 

installation, transportation, taxes, duty 

or protective in-transit insurance, shall 

be included or excluded from the unit 

acquisition cost in accordance with the 

recipient’s regular accounting practices. 

(d) Advance means a payment made 

by Treasury check or other appropriate 

payment mechanism to a recipient upon 

its request either before outlays are 

made by the recipient or through the use 

of predetermined payment schedules. 

(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. 

(f) Cash contributions means the 

recipient’s cash outlay, including the 

outlay of money contributed to the 

recipient by third parties. 

(g) Closeout means the process by 

which a Federal awarding agency 

determines that all applicable 

administrative actions and all required 

work of the award have been completed 

by the recipient and Federal awarding 

agency. 

(h) Contract means a procurement 

contract under an award or subaward, 

and a procurement subcontract under a 

recipient’s or subrecipient’s contract. 

(i) Cost sharing or matching means 

that portion of project or program costs 

not borne by the Federal Government. 

(j) Date of completion means the date 

on which all work under an award is 

completed or the date on the award 

document, or any supplement or 

amendment thereto, on which Federal 

sponsorship ends. 

(k) Disallowed costs means those 

charges to an award that the Federal 

awarding agency determines to be 

unallowable, in accordance with the 

applicable Federal cost principles or 

other terms and conditions contained in 

the award. 

(l) Equipment means tangible 

nonexpendable personal property 

including exempt property charged 

directly to the award having a useful life 

of more than one year and an 

acquisition cost of $5000 or more per 

unit. However, consistent with recipient 

policy, lower limits may be established. 

(m) Excess property means property 

under the control of any Federal 

awarding agency that, as determined by 

the head thereof, is no longer required 

for its needs or the discharge of its 

responsibilities. 

(n) Exempt property means tangible 

personal property acquired in whole or 

in part with Federal funds, where the 

Federal awarding agency has statutory 

authority to vest title in the recipient 

without further obligation to the Federal 

Government. An example of exempt 

property authority is contained in the 

Federal Grant and Cooperative 

Agreement Act (31 U.S.C. 6306), for 

property acquired under an award to 

conduct basic or applied research by a 

non-profit institution of higher 

education or non-profit organization 

whose principal purpose is conducting 

scientific research. 

(o) Federal awarding agency means 

the Federal agency that provides an 

award to the recipient. 

(p) Federal funds authorized means 

the total amount of Federal funds 

obligated by the Federal Government for 

use by the recipient. This amount may 

include any authorized carryover of 

unobligated funds from prior funding 

periods when permitted by agency 

regulations or agency implementing 

instructions. 

(q) Federal share of real property, 

equipment, or supplies means that 

percentage of the property’s acquisition 

costs and any improvement 

expenditures paid with Federal funds. 

(r) Funding period means the period 

of time when Federal funding is 

available for obligation by the recipient. 

(s) Intangible property and debt 

instruments means, but is not limited to, 

trademarks, copyrights, patents and 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52263 

patent applications and such property 

as loans, notes and other debt 

instruments, lease agreements, stock 

and other instruments of property 

ownership, whether considered tangible 

or intangible. 

(t) Obligations means the amounts of 

orders placed, contracts and grants 

awarded, services received and similar 

transactions during a given period that 

require payment by the recipient during 

the same or a future period. 

(u) Outlays or expenditures means 

charges made to the project or program. 

They may be reported on a cash or 

accrual basis. For reports prepared on a 

cash basis, outlays are the sum of cash 

disbursements for direct charges for 

goods and services, the amount of 

indirect expense charged, the value of 

third party in-kind contributions 

applied and the amount of cash 

advances and payments made to 

subrecipients. For reports prepared on 

an accrual basis, outlays are the sum of 

cash disbursements for direct charges 

for goods and services, the amount of 

indirect expense incurred, the value of 

in-kind contributions applied, and the 

net increase (or decrease) in the 

amounts owed by the recipient for 

goods and other property received, for 

services performed by employees, 

contractors, subrecipients and other 

payees and other amounts becoming 

owed under programs for which no 

current services or performance are 

required. 

(v) Personal property means property 

of any kind except real property. It may 

be tangible, having physical existence, 

or intangible, having no physical 

existence, such as copyrights, patents, 

or securities. 

(w) Prior approval means written 

approval by an authorized official 

evidencing prior consent. 

(x) Program income means gross 

income earned by the recipient that is 

directly generated by a supported 

activity or earned as a result of the 

award (see exclusions in § 49.24 (e) and 

(h)). Program income includes, but is 

not limited to, income from fees for 

services performed, the use or rental of 

real or personal property acquired under 

federally-funded projects, the sale of 

commodities or items fabricated under 

an award, license fees and royalties on 

patents and copyrights, and interest on 

loans made with award funds. Interest 

earned on advances of Federal funds is 

not program income. Except as 

otherwise provided in Federal awarding 

agency regulations or the terms and 

conditions of the award, program 

income does not include the receipt of 

principal on loans, rebates, credits, 

discounts, etc., or interest earned on any 

of them. 

(y) Project costs means all allowable 

costs, as set forth in the applicable 

Federal cost principles, incurred by a 

recipient and the value of the 

contributions made by third parties in 

accomplishing the objectives of the 

award during the project period. 

(z) Project period means the period 

established in the award document 

during which Federal sponsorship 

begins and ends. 

(aa) Property means, unless otherwise 

stated, real property, equipment, 

intangible property and debt 

instruments. 

(bb) Real property means land, 

including land improvements, 

structures and appurtenances thereto, 

but excludes movable machinery and 

equipment. 

(cc) Recipient means an organization 

receiving financial assistance directly 

from Federal awarding agencies to carry 

out a project or program. The term 

includes public and private institutions 

of higher education, public and private 

hospitals, and other quasi-public and 

private non-profit organizations such as, 

but not limited to, community action 

agencies, research institutes, 

educational associations, and health 

centers. The term may include 

commercial organizations, foreign or 

international organizations (such as 

agencies of the United Nations) which 

are recipients, subrecipients, or 

contractors or subcontractors of 

recipients or subrecipients at the 

discretion of the Federal awarding 

agency. The term does not include 

government-owned contractor-operated 

facilities or research centers providing 

continued support for mission-oriented, 

large-scale programs that are 

government-owned or controlled, or are 

designated as federally-funded research 

and development centers. 

(dd) Research and development 

means all research activities, both basic 

and applied, and all development 

activities that are supported at 

universities, colleges, and other nonprofit institutions. ‘‘Research’’ is 

defined as a systematic study directed 

toward fuller scientific knowledge or 

understanding of the subject studied. 

‘‘Development’’ is the systematic use of 

knowledge and understanding gained 

from research directed toward the 

production of useful materials, devices, 

systems, or methods, including design 

and development of prototypes and 

processes. The term research also 

includes activities involving the training 

of individuals in research techniques 

where such activities utilize the same 

facilities as other research and 

development activities and where such 

activities are not included in the 

instruction function. 

(ee) Small awards means a grant or 

cooperative agreement not exceeding 

the small purchase threshold fixed at 41 

U.S.C. 403(11) ($100,000). 

(ff) Subaward means an award of 

financial assistance in the form of 

money, or property in lieu of money, 

made under an award by a recipient to 

an eligible subrecipient or by a 

subrecipient to a lower tier subrecipient. 

The term includes financial assistance 

when provided by any legal agreement, 

even if the agreement is called a 

contract, but does not include 

procurement of goods and services nor 

does it include any form of assistance, 

which is excluded from the definition of 

‘‘award’’ in paragraph (e) of this section. 

(gg) Subrecipient means the legal 

entity to which a subaward is made and 

which is accountable to the recipient for 

the use of the funds provided. The term 

may include foreign or international 

organizations (such as agencies of the 

United Nations) at the discretion of the 

Federal awarding agency. 

(hh) Supplies means all personal 

property excluding equipment, 

intangible property, and debt 

instruments as defined in this section, 

and inventions of a contractor 

conceived or first actually reduced to 

practice in the performance of work 

under a funding agreement (‘‘subject 

inventions’’), as defined in 37 CFR 

401.2(d) 

(ii) Suspension means an action by a 

Federal awarding agency that 

temporarily withdraws Federal 

sponsorship under an award, pending 

corrective action by the recipient or 

pending a decision to terminate the 

award by the Federal awarding agency. 

Suspension of an award is a separate 

action from suspension under Federal 

agency regulations implementing E.O.s 

12549 and 12689, ‘‘Debarment and 

Suspension.’’

(jj) Termination means the 

cancellation of Federal sponsorship, in 

whole or in part, under an agreement at 

any time prior to the date of completion. 

(kk) Third party in-kind contributions 

means the value of non-cash 

contributions provided by non-Federal 

third parties. Third party in-kind 

contributions may be in the form of real 

property, equipment, supplies and other 

expendable property, and the value of 

goods and services directly benefiting 

and specifically identifiable to the 

project or program. 

(ll) Unliquidated obligations, for 

financial reports prepared on a cash 

basis, means the amount of obligations 

incurred by the recipient that have not 

52264 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

been paid. For reports prepared on an 

accrued expenditure basis, they 

represent the amount of obligations 

incurred by the recipient for which an 

outlay has not been recorded. 

(mm) Unobligated balance means the 

portion of the funds authorized by the 

Federal awarding agency that has not 

been obligated by the recipient and is 

determined by deducting the 

cumulative obligations from the 

cumulative funds authorized. 

(nn) Unrecovered indirect cost means 

the difference between the amount 

awarded and the amount, which could 

have been awarded under the recipient’s 

approved negotiated indirect cost rate. 

(oo) Working capital advance means a 

procedure where by funds are advanced 

to the recipient to cover its estimated 

disbursement needs for a given initial 

period. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.3 Effect on other issuances. 

For awards subject to this part, all 

administrative requirements of codified 

program regulations, program manuals, 

handbooks and other nonregulatory 

materials which are inconsistent with 

the requirements of this part shall be 

superseded, except to the extent they 

are required by statute, or authorized in 

accordance with the deviations 

provision in § 49.4. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.4 Deviations. 

The Office of Management and Budget 

(OMB) may grant exceptions for classes 

of grants or recipients subject to the 

requirements of this part when 

exceptions are not prohibited by statute. 

However, in the interest of maximum 

uniformity, exceptions from the 

requirements of this part shall be 

permitted only in unusual 

circumstances. Federal awarding 

agencies may apply more restrictive 

requirements to a class of recipients 

when approved by OMB. Federal 

awarding agencies may apply less 

restrictive requirements when awarding 

small awards, except for those 

requirements, which are statutory. 

Exceptions on a case-by-case basis may 

also be made by Federal awarding 

agencies. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.5 Subawards. 

Unless sections of this part 

specifically exclude subrecipients from 

coverage, the provisions of this part 

shall be applied to subrecipients 

performing work under awards if such 

subrecipients are institutions of higher 

education, hospitals or other non-profit 

organizations. State and local 

government subrecipients are subject to 

the provisions of regulations in part 43 

of this chapter. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart B—Pre-Award Requirements 

§ 49.10 Purpose. 

Sections 49.11 through 49.17 

prescribes forms and instructions and 

other pre-award matters to be used in 

applying for Federal awards. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.11 Pre-award policies. 

(a) Use of grants and cooperative 

agreements, and contracts. In each 

instance, the Federal awarding agency 

shall decide on the appropriate award 

instrument (i.e., grant, cooperative 

agreement, or contract). The Federal 

Grant and Cooperative Agreement Act 

(31 U.S.C. 6301–08) governs the use of 

grants, cooperative agreements and 

contracts. A grant or cooperative 

agreement shall be used only when the 

principal purpose of a transaction is to 

accomplish a public purpose of support 

or stimulation authorized by Federal 

statute. The statutory criterion for 

choosing between grants and 

cooperative agreements is that for the 

latter, ‘‘substantial involvement is 

expected between the executive agency 

and the State, local government, or other 

recipient when carrying out the activity 

contemplated in the agreement.’’

Contracts shall be used when the 

principal purpose is acquisition of 

property or services for the direct 

benefit or use of the Federal 

Government. 

(b) Public notice and priority setting. 

Federal awarding agencies shall notify 

the public of its intended funding 

priorities for discretionary grant 

programs, unless funding priorities are 

established by Federal statute. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.12 Forms for applying for Federal 

assistance. 

(a) Federal awarding agencies shall 

comply with the applicable report 

clearance requirements of 5 CFR part 

1320, ‘‘Controlling Paperwork Burdens 

on the Public,’’ with regard to all forms 

used by the Federal awarding agency in 

place of or as a supplement to the 

Standard Form 424 (SF–424) series. 

(b) Applicants shall use the SF–424 

series or those forms and instructions 

prescribed by the Federal awarding 

agency. 

(c) For Federal programs covered by 

E.O. 12372, ‘‘Intergovernmental Review 

of Federal Programs,’’ the applicant 

shall complete the appropriate sections 

of the SF–424 (Application for Federal 

Assistance) indicating whether the 

application was subject to review by the 

State Single Point of Contact (SPOC). 

The name and address of the SPOC for 

a particular State can be obtained from 

the Federal awarding agency or the 

Catalog of Federal Domestic Assistance. 

The SPOC shall advise the applicant 

whether the program for which 

application is made has been selected 

by that State for review. 

(d) Federal awarding agencies that do 

not use the SF–424 form should indicate 

whether the application is subject to 

review by the State under E.O. 12372. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.13 Debarment and suspension. 

Federal awarding agencies and 

recipients shall comply with part 44 of 

this chapter, which restricts subawards 

and contracts with certain parties that 

are debarred, suspended or otherwise 

excluded from or ineligible for 

participation in Federal assistance 

programs or activities. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.14 Special award conditions. 

If an applicant or recipient has a 

history of poor performance, is not 

financially stable, has a management 

system that does not meet the standards 

prescribed in this part, has not 

conformed to the terms and conditions 

of a previous award, or is not otherwise 

responsible, Federal awarding agencies 

may impose additional requirements as 

needed, provided that such applicant or 

recipient is notified in writing as to: the 

nature of the additional requirements, 

the reason why the additional 

requirements are being imposed, the 

nature of the corrective action needed, 

the time allowed for completing the 

corrective actions, and the method for 

requesting reconsideration of the 

additional requirements imposed. Any 

special conditions shall be promptly 

removed once the conditions that 

prompted them have been corrected. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.15 Metric system of measurement. 

The Metric Conversion Act, as 

amended by the Omnibus Trade and 

Competitiveness Act (15 U.S.C. 205) 

declares that the metric system is the 

preferred measurement system for U.S. 

trade and commerce. The Act requires 

each Federal agency to establish a date 

or dates in consultation with the 

Secretary of Commerce, when the metric 

system of measurement will be used in 

the agency’s procurements, grants, and 

other business-related activities. Metric 

implementation may take longer where 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52265 

the use of the system is initially 

impractical or likely to cause significant 

inefficiencies in the accomplishment of 

federally-funded activities. Federal 

awarding agencies shall follow the 

provisions of E.O. 12770, ‘‘Metric Usage 

in Federal Government Programs.’’

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.16 Resource Conservation and 

Recovery Act (RCRA). 

Under the RCRA (Pub. L. 94–580, 

codified at 42 U.S.C. 6962), any State 

agency or agency of a political 

subdivision of a State which is using 

appropriated Federal funds must 

comply with Section 6002. Section 6002 

requires that preference be given in 

procurement programs to the purchase 

of specific products containing recycled 

materials identified in guidelines 

developed by the Environmental 

Protection Agency (EPA) (40 CFR parts 

247–254). Accordingly, State and local 

institutions of higher education, 

hospitals, and non-profit organizations 

that receive direct Federal awards or 

other Federal funds shall give 

preference in their procurement 

programs funded with Federal funds to 

the purchase of recycled products 

pursuant to the EPA guidelines. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.17 Certifications and representations. 

Unless prohibited by statute or 

codified regulation, each Federal 

awarding agency is authorized and 

encouraged to allow recipients to 

submit certifications and 

representations required by statute, 

executive order, or regulation on an 

annual basis, if the recipients have 

ongoing and continuing relationships 

with the agency. Annual certifications 

and representations shall be signed by 

responsible officials with the authority 

to ensure recipients’ compliance with 

the pertinent requirements. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart C—Post-Award Requirements 

Financial and Program Management 

§ 49.20 Purpose of financial and program 

management. 

Sections 49.21 through 49.28 

prescribe standards for financial 

management systems, methods for 

making payments and rules for: 

satisfying cost sharing and matching 

requirements, accounting for program 

income, budget revision approvals, 

making audits, determining allowability 

of cost, and establishing fund 

availability. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.21 Standards for financial 

management systems. 

(a) Federal awarding agencies shall 

require recipients to relate financial data 

to performance data and develop unit 

cost information whenever practical. 

(b) Recipients’ financial management 

systems shall provide for the following. 

(1) Accurate, current and complete 

disclosure of the financial results of 

each federally-sponsored project or 

program in accordance with the 

reporting requirements set forth in 

§ 49.52. If a Federal awarding agency 

requires reporting on an accrual basis 

from a recipient that maintains its 

records on other than an accrual basis, 

the recipient shall not be required to 

establish an accrual accounting system. 

These recipients may develop such 

accrual data for its reports on the basis 

of an analysis of the documentation on 

hand. 

(2) 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. 

(3) 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. 

(4) Comparison of outlays with budget 

amounts for each award. Whenever 

appropriate, financial information 

should be related to performance and 

unit cost data. 

(5) 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. To the extent 

that the provisions of the Cash 

Management Improvement Act (CMIA) 

(Pub. L. 101–453) govern, payment 

methods of State agencies, 

instrumentalities, and fiscal agents shall 

be consistent with CMIA Treasury-State 

Agreements or the CMIA default 

procedures codified at 31 CFR part 205, 

‘‘Withdrawal of Cash from the Treasury 

for Advances under Federal Grant and 

Other Programs.’’

(6) Written procedures for 

determining the reasonableness, 

allocability and allowability of costs in 

accordance with the provisions of the 

applicable Federal cost principles and 

the terms and conditions of the award. 

(7) Accounting records including cost 

accounting records that are supported 

by source documentation. 

(c) Where the Federal Government 

guarantees or insures the repayment of 

money borrowed by the recipient, the 

Federal awarding agency, at its 

discretion, may require adequate 

bonding and insurance if the bonding 

and insurance requirements of the 

recipient are not deemed adequate to 

protect the interest of the Federal 

Government. 

(d) The Federal awarding agency may 

require adequate fidelity bond coverage 

where the recipient lacks sufficient 

coverage to protect the Federal 

Government’s interest. 

(e) Where bonds are required in the 

situations described in paragraphs (a) 

through (d) of this section, the bonds 

shall be obtained from companies 

holding certificates of authority as 

acceptable sureties, as prescribed in 31 

CFR part 223, ‘‘Surety Companies Doing 

Business with the United States.’’

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.22 Payment. 

(a) Payment methods shall minimize 

the time elapsing between the transfer of 

funds from the United States Treasury 

and the issuance or redemption of 

checks, warrants, or payment by other 

means by the recipients. Payment 

methods of State agencies or 

instrumentalities shall be consistent 

with Treasury-State CMIA agreements 

or default procedures codified at 31 CFR 

part 205. 

(b) Recipients are to be paid in 

advance, provided they maintain or 

demonstrate the willingness to maintain 

written procedures that minimize the 

time elapsing between the transfer of 

funds and disbursement by the 

recipient, and financial management 

systems that meet the standards for fund 

control and accountability as 

established in § 49.21. Cash advances to 

a recipient organization shall be limited 

to the minimum amounts needed and be 

timed to be in accordance with the 

actual, immediate cash requirements of 

the recipient organization in carrying 

out the purpose of the approved 

program or project. The timing and 

amount of cash advances shall be as 

close as is administratively feasible to 

the actual disbursements by the 

recipient organization for direct 

program or project costs and the 

proportionate share of any allowable 

indirect costs. 

(c) Whenever possible, advances shall 

be consolidated to cover anticipated 

cash needs for all awards made by the 

Federal awarding agency to the 

recipient. 

(1) Advance payment mechanisms 

include, but are not limited to, Treasury 

check and electronic funds transfer. 

52266 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

(2) Advance payment mechanisms are 

subject to 31 CFR part 205. 

(3) Recipients shall be authorized to 

submit requests for advances and 

reimbursements at least monthly when 

electronic fund transfers are not used. 

(d) Requests for Treasury check 

advance payment shall be submitted on 

SF–270, ‘‘Request for Advance or 

Reimbursement,’’ or other forms as may 

be authorized by OMB. This form is not 

to be used when Treasury check 

advance payments are made to the 

recipient automatically through the use 

of a predetermined payment schedule or 

if precluded by special Federal 

awarding agency instructions for 

electronic funds transfer. 

(e) Reimbursement is the preferred 

method when the requirements in 

paragraph (b) of this section cannot be 

met. Federal awarding agencies may 

also use this method on any 

construction agreement, or if the major 

portion of the construction project is 

accomplished through private market 

financing or Federal loans, and the 

Federal assistance constitutes a minor 

portion of the project. 

(1) When the reimbursement method 

is used, the Federal awarding agency 

shall make payment within 30 days after 

receipt of the billing, unless the billing 

is improper. 

(2) Recipients shall be authorized to 

submit request for reimbursement at 

least monthly when electronic funds 

transfers are not used. 

(f) If a recipient cannot meet the 

criteria for advance payments and the 

Federal awarding agency has 

determined that reimbursement is not 

feasible because the recipient lacks 

sufficient working capital, the Federal 

awarding agency may provide cash on a 

working capital advance basis. Under 

this procedure, the Federal awarding 

agency shall advance cash to the 

recipient to cover its estimated 

disbursement needs for an initial period 

generally geared to the awardee’s 

disbursing cycle. Thereafter, the Federal 

awarding agency shall reimburse the 

recipient for its actual cash 

disbursements. The working capital 

advance method of payment shall not be 

used for recipients unwilling or unable 

to provide timely advances to their 

subrecipient to meet the subrecipient’s 

actual cash disbursements. 

(g) To the extent available, recipients 

shall disburse funds available from 

repayments to and interest earned on a 

revolving fund, program income, 

rebates, refunds, contract settlements, 

audit recoveries and interest earned on 

such funds before requesting additional 

cash payments. 

(h) Unless otherwise required by 

statute, Federal awarding agencies shall 

not withhold payments for proper 

charges made by recipients at any time 

during the project period unless either 

of the following conditions apply. 

(1) A recipient has failed to comply 

with the project objectives, the terms 

and conditions of the award, or Federal 

reporting requirements. 

(2) The recipient or subrecipient is 

delinquent in a debt to the United States 

as defined in OMB Circular A–129, 

‘‘Managing Federal Credit Programs.’’

Under such conditions, the Federal 

awarding agency may, upon reasonable 

notice, inform the recipient that 

payments shall not be made for 

obligations incurred after a specified 

date until the conditions are corrected 

or the indebtedness to the Federal 

Government is liquidated. 

(i) Standards governing the use of 

banks and other institutions as 

depositories of funds advanced under 

awards are as follows. 

(1) Except for situations described in 

paragraph (i)(2) of this section, Federal 

awarding agencies shall not require 

separate depository accounts for funds 

provided to a recipient or establish any 

eligibility requirements for depositories 

for funds provided to a recipient. 

However, recipients must be able to 

account for the receipt, obligation and 

expenditure of funds. 

(2) Advances of Federal funds shall be 

deposited and maintained in insured 

accounts whenever possible. 

(j) Consistent with the national goal of 

expanding the opportunities for womenowned and minority-owned business 

enterprises, recipients shall be 

encouraged to use women-owned and 

minority-owned banks (a bank which is 

owned at least 50 percent by women or 

minority group members). 

(k) Recipients shall maintain 

advances of Federal funds in interest 

bearing accounts, unless any of the 

following conditions apply. 

(1) The recipient receives less than 

$120,000 in Federal awards per year. 

(2) The best reasonably available 

interest bearing account would not be 

expected to earn interest in excess of 

$250 per year on Federal cash balances. 

(3) The depository would require an 

average or minimum balance so high 

that it would not be feasible within the 

expected Federal and non-Federal cash 

resources. 

(l) For those entities where CMIA and 

its implementing regulations do not 

apply, interest earned on Federal 

advances deposited in interest bearing 

accounts shall be remitted annually to 

Department of Health and Human 

Services, Payment Management System, 

Rockville, MD 20852. Interest amounts 

up to $250 per year may be retained by 

the recipient for administrative expense. 

State universities and hospitals shall 

comply with CMIA, as it pertains to 

interest. If an entity subject to CMIA 

uses its own funds to pay pre-award 

costs for discretionary awards without 

prior written approval from the Federal 

awarding agency, it waives its right to 

recover the interest under CMIA. 

(m) Except as noted elsewhere in this 

part, only the following forms shall be 

authorized for the recipients in 

requesting advances and 

reimbursements. Federal agencies shall 

not require more than an original and 

two copies of these forms. 

(1) SF–270, Request for Advance or 

Reimbursement. Each Federal awarding 

agency shall adopt the SF–270 as a 

standard form for all nonconstruction 

programs when electronic funds transfer 

or predetermined advance methods are 

not used. Federal awarding agencies, 

however, have the option of using this 

form for construction programs in lieu 

of the SF–271, ‘‘Outlay Report and 

Request for Reimbursement for 

Construction Programs.’’

(2) SF–271, Outlay Report and 

Request for Reimbursement for 

Construction Programs. Each Federal 

awarding agency shall adopt the SF–271 

as the standard form to be used for 

requesting reimbursement for 

construction programs. However, a 

Federal awarding agency may substitute 

the SF–270 when the Federal awarding 

agency determines that it provides 

adequate information to meet Federal 

needs. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.23 Cost sharing or matching. 

(a) All contributions, including cash 

and third party in-kind, shall be 

accepted as part of the recipient’s cost 

sharing or matching when such 

contributions meet all of the following 

criteria. 

(1) Are verifiable from the recipient’s 

records. 

(2) Are not included as contributions 

for any other federally-assisted project 

or program. 

(3) Are necessary and reasonable for 

proper and efficient accomplishment of 

project or program objectives. 

(4) Are allowable under the applicable 

cost principles. 

(5) Are not paid by the Federal 

Government under another award, 

except where authorized by Federal 

statute to be used for cost sharing or 

matching. 

(6) Are provided for in the approved 

budget when required by the Federal 

awarding agency. 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52267 

(7) Conform to other provisions of this 

part, as applicable. 

(b) Unrecovered indirect costs may be 

included as part of cost sharing or 

matching only with the prior approval 

of the Federal awarding agency. 

(c) Values for recipient contributions 

of services and property shall be 

established in accordance with the 

applicable cost principles. If a Federal 

awarding agency authorizes recipients 

to donate buildings or land for 

construction/facilities acquisition 

projects or long-term use, the value of 

the donated property for cost sharing or 

matching shall be the lesser of the 

following. 

(1) The certified value of the 

remaining life of the property recorded 

in the recipient’s accounting records at 

the time of donation. 

(2) The current fair market value. 

However, when there is sufficient 

justification, the Federal awarding 

agency may approve the use of the 

current fair market value of the donated 

property, even if it exceeds the certified 

value at the time of donation to the 

project. 

(d) Volunteer services furnished by 

professional and technical personnel, 

consultants, and other skilled and 

unskilled labor may be counted as cost 

sharing or matching if the service is an 

integral and necessary part of an 

approved project or program. Rates for 

volunteer services shall be consistent 

with those paid for similar work in the 

recipient’s organization. In those 

instances in which the required skills 

are not found in the recipient 

organization, rates shall be consistent 

with those paid for similar work in the 

labor market in which the recipient 

competes for the kind of services 

involved. In either case, paid fringe 

benefits that are reasonable, allowable, 

and allocable may be included in the 

valuation. 

(e) When an employer other than the 

recipient furnishes the services of an 

employee, these services shall be valued 

at the employee’s regular rate of pay 

(plus an amount of fringe benefits that 

are reasonable, allowable, and allocable, 

but exclusive of overhead costs), 

provided these services are in the same 

skill for which the employee is normally 

paid. 

(f) Donated supplies may include 

such items as expendable equipment, 

office supplies, laboratory supplies or 

workshop and classroom supplies. 

Value assessed to donated supplies 

included in the cost sharing or matching 

share shall be reasonable and shall not 

exceed the fair market value of the 

property at the time of the donation. 

(g) The method used for determining 

cost sharing or matching for donated 

equipment, buildings and land for 

which title passes to the recipient may 

differ according to the purpose of the 

award, if either of the following 

conditions apply. 

(1) If the purpose of the award is to 

assist the recipient in the acquisition of 

equipment, buildings or land, the total 

value of the donated property may be 

claimed as cost sharing or matching. 

(2) If the purpose of the award is to 

support activities that require the use of 

equipment, buildings or land, normally 

only depreciation or use charges for 

equipment and buildings may be made. 

However, the full value of equipment or 

other capital assets and fair rental 

charges for land may be allowed, 

provided that the Federal awarding 

agency has approved the charges. 

(h) The value of donated property 

shall be determined in accordance with 

the usual accounting policies of the 

recipient, with the following 

qualifications. 

(1) The value of donated land and 

buildings shall not exceed its fair 

market value at the time of donation to 

the recipient as established by an 

independent appraiser (e.g., certified 

real property appraiser or General 

Services Administration representative) 

and certified by a responsible official of 

the recipient. 

(2) The value of donated equipment 

shall not exceed the fair market value of 

equipment of the same age and 

condition at the time of donation. 

(3) The value of donated space shall 

not exceed the fair rental value of 

comparable space as established by an 

independent appraisal of comparable 

space and facilities in a privately-owned 

building in the same locality. 

(4) The value of loaned equipment 

shall not exceed its fair rental value. 

(5) The following requirements 

pertain to the recipient’s supporting 

records for in-kind contributions from 

third parties. 

(i) Volunteer services shall be 

documented and, to the extent feasible, 

supported by the same methods used by 

the recipient for its own employees. 

(ii) The basis for determining the 

valuation for personal service, material, 

equipment, buildings and land shall be 

documented. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.24 Program income. 

(a) Federal awarding agencies shall 

apply the standards set forth in this 

section in requiring recipient 

organizations to account for program 

income related to projects financed in 

whole or in part with Federal funds. 

(b) Except as provided in paragraph 

(h) of this section, program income 

earned during the project period shall 

be retained by the recipient and, in 

accordance with Federal awarding 

agency regulations or the terms and 

conditions of the award, shall be used 

in one or more of the ways listed in the 

following: 

(1) Added to funds committed to the 

project by the Federal awarding agency 

and recipient and used to further 

eligible project or program objectives. 

(2) Used to finance the non-Federal 

share of the project or program. 

(3) Deducted from the total project or 

program allowable cost in determining 

the net allowable costs on which the 

Federal share of costs is based. 

(c) When an agency authorizes the 

disposition of program income as 

described in paragraphs (b)(1) or (b)(2) 

of this section, program income in 

excess of any limits stipulated shall be 

used in accordance with paragraph 

(b)(3) of this section. 

(d) In the event that the Federal 

awarding agency does not specify in its 

regulations or the terms and conditions 

of the award how program income is to 

be used, paragraph (b)(3) of this section 

shall apply automatically to all projects 

or programs except research. For awards 

that support research, paragraph (b)(1) 

of this section shall apply automatically 

unless the awarding agency indicates in 

the terms and conditions another 

alternative on the award or the recipient 

is subject to special award conditions, 

as indicated in § 49.14. 

(e) Unless Federal awarding agency 

regulations or the terms and conditions 

of the award provide otherwise, 

recipients shall have no obligation to 

the Federal Government regarding 

program income earned after the end of 

the project period. 

(f) If authorized by Federal awarding 

agency regulations or the terms and 

conditions of the award, costs incident 

to the generation of program income 

may be deducted from gross income to 

determine program income, provided 

these costs have not been charged to the 

award. 

(g) Proceeds from the sale of property 

shall be handled in accordance with the 

requirements of the Property Standards 

(See §§ 49.30 through 49.37). 

(h) Unless Federal awarding agency 

regulations or the terms and condition 

of the award provide otherwise, 

recipients shall have no obligation to 

the Federal Government with respect to 

program income earned from license 

fees and royalties for copyrighted 

material, patents, patent applications, 

trademarks, and inventions produced 

under an award. However, Patent and 

52268 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

Trademark Amendments (35 U.S.C. 18) 

apply to inventions made under an 

experimental, developmental, or 

research award. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.25 Revision of budget and program 

plans. 

(a) The budget plan is the financial 

expression of the project or program as 

approved during the award process. It 

may include either the Federal and nonFederal share, or only the Federal share, 

depending upon Federal awarding 

agency requirements. It shall be related 

to performance for program evaluation 

purposes whenever appropriate. 

(b) Recipients are required to report 

deviations from budget and program 

plans, and request prior approvals for 

budget and program plan revisions, in 

accordance with this section. 

(c) For nonconstruction awards, 

recipients shall request prior approvals 

from Federal awarding agencies for one 

or more of the following program or 

budget related reasons. 

(1) Change in the scope or the 

objective of the project or program (even 

if there is no associated budget revision 

requiring prior written approval). 

(2) Change in a key person specified 

in the application or award document. 

(3) The absence for more than three 

months, or a 25 percent reduction in 

time devoted to the project, by the 

approved project director or principal 

investigator. 

(4) The need for additional Federal 

funding. 

(5) The transfer of amounts budgeted 

for indirect costs to absorb increases in 

direct costs, or vice versa, if approval is 

required by the Federal awarding 

agency. 

(6) The inclusion, unless waived by 

the Federal awarding agency, of costs 

that require prior approval in 

accordance with OMB Circular A–21, 

‘‘Cost Principles for Educational 

Institutions,’’ OMB Circular A–122, 

‘‘Cost Principles for Non-Profit 

Organizations,’’ or 45 CFR part 74 

Appendix E, ‘‘Principles for 

Determining Costs Applicable to 

Research and Development under 

Grants and Contracts with Hospitals,’’ or 

48 CFR part 31, ‘‘Contract Cost 

Principles and Procedures,’’ as 

applicable. 

(7) The transfer of funds allotted for 

training allowances (direct payment to 

trainees) to other categories of expense. 

(8) Unless described in the 

application and funded in the approved 

awards, the subaward, transfer or 

contracting out of any work under an 

award. This provision does not apply to 

the purchase of supplies, material, 

equipment or general support services. 

(d) No other prior approval 

requirements for specific items may be 

imposed unless a deviation has been 

approved by OMB. 

(e) Except for requirements listed in 

paragraphs (c)(1) and (c)(4) of this 

section, Federal awarding agencies are 

authorized, at their option, to waive 

cost-related and administrative prior 

written approvals required by this part 

and OMB Circulars A–21 and A–122. 

Such waivers may include authorizing 

recipients to do any one or more of the 

following. 

(1) Incur pre-award costs 90 calendar 

days prior to award or more than 90 

calendar days with the prior approval of 

the Federal awarding agency. All preaward costs are incurred at the 

recipient’s risk (i.e., the Federal 

awarding agency is under no obligation 

to reimburse such costs if for any reason 

the recipient does not receive an award 

or if the award is less than anticipated 

and inadequate to cover such costs). 

(2) Initiate a one-time extension of the 

expiration date of the award of up to 12 

months unless one or more of the 

following conditions apply. For onetime extensions, the recipient must 

notify the Federal awarding agency in 

writing with the supporting reasons and 

revised expiration date at least 10 days 

before the expiration date specified in 

the award. This one-time extension may 

not be exercised merely for the purpose 

of using unobligated balances. 

(i) The terms and conditions of award 

prohibit the extension. 

(ii) The extension requires additional 

Federal funds. 

(iii) The extension involves any 

change in the approved objectives or 

scope of the project. 

(3) Carry forward unobligated 

balances to subsequent funding periods. 

(4) For awards that support research, 

unless the Federal awarding agency 

provides otherwise in the award or in 

the agency’s regulations, the prior 

approval requirements described in 

paragraph (e) of this section are 

automatically waived (i.e., recipients 

need not obtain such prior approvals) 

unless one of the conditions included in 

paragraph (e)(2) of this section applies. 

(f) The Federal awarding agency may, 

at its option, restrict the transfer of 

funds among direct cost categories or 

programs, functions and activities for 

awards in which the Federal share of 

the project exceeds $100,000 and the 

cumulative amount of such transfers 

exceeds or is expected to exceed 10 

percent of the total budget as last 

approved by the Federal awarding 

agency. No Federal awarding agency 

shall permit a transfer that would cause 

any Federal appropriation or part 

thereof to be used for purposes other 

than those consistent with the original 

intent of the appropriation. 

(g) All other changes to 

nonconstruction budgets, except for the 

changes described in paragraph (j) of 

this section, do not require prior 

approval. 

(h) For construction awards, 

recipients shall request prior written 

approval promptly from Federal 

awarding agencies for budget revisions 

whenever any of the following 

conditions apply. 

(1) The revision results from changes 

in the scope or the objective of the 

project or program. 

(2) The need arises for additional 

Federal funds to complete the project. 

(3) A revision is desired which 

involves specific costs for which prior 

written approval requirements may be 

imposed consistent with applicable 

OMB cost principles listed in § 49.27. 

(i) No other prior approval 

requirements for specific items may be 

imposed unless a deviation has been 

approved by OMB. 

(j) When a Federal awarding agency 

makes an award that provides support 

for both construction and 

nonconstruction work, the Federal 

awarding agency may require the 

recipient to request prior approval from 

the Federal awarding agency before 

making any fund or budget transfers 

between the two types of work 

supported. 

(k) For both construction and 

nonconstruction awards, Federal 

awarding agencies shall require 

recipients to notify the Federal 

awarding agency in writing promptly 

whenever the amount of Federal 

authorized funds is expected to exceed 

the needs of the recipient for the project 

period by more than $5000 or five 

percent of the Federal award, whichever 

is greater. This notification shall not be 

required if an application for additional 

funding is submitted for a continuation 

award. 

(l) When requesting approval for 

budget revisions, recipients shall use 

the budget forms that were used in the 

application unless the Federal awarding 

agency indicates a letter of request 

suffices. 

(m) Within 30 calendar days from the 

date of receipt of the request for budget 

revisions, Federal awarding agencies 

shall review the request and notify the 

recipient whether the budget revisions 

have been approved. If the revision is 

still under consideration at the end of 

30 calendar days, the Federal awarding 

agency shall inform the recipient in 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52269 

writing of the date when the recipient 

may expect the decision. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.26 Non-Federal audits. 

(a) Recipients and subrecipients that 

are institutions of higher education or 

other non-profit organizations 

(including hospitals) shall be subject to 

the audit requirements contained in the 

Single Audit Act Amendments of 1996 

(31 U.S.C. 7501–7507) and revised OMB 

Circular A–133, ‘‘Audits of States, Local 

Governments, and Non-Profit 

Organizations.’’

(b) State and local governments shall 

be subject to the audit requirements 

contained in the Single Audit Act 

Amendments of 1996 (31 U.S.C. 7501–

7507) and revised OMB Circular A–133, 

‘‘Audits of States, Local Governments, 

and Non-Profit Organizations.’’

(c) For-profit hospitals not covered by 

the audit provisions of revised OMB 

Circular A–133 shall be subject to the 

audit requirements of the Federal 

awarding agencies. 

(d) Commercial organizations shall be 

subject to the audit requirements of the 

Federal awarding agency or the prime 

recipient as incorporated into the award 

document. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.27 Allowable costs. 

For each kind of recipient, there is a 

set of Federal principles for determining 

allowable costs. Allowability of costs 

shall be determined in accordance with 

the cost principles applicable to the 

entity incurring the costs. Thus, 

allowability of costs incurred by State, 

local or federally-recognized Indian 

tribal governments is determined in 

accordance with the provisions of OMB 

Circular A–87, ‘‘Cost Principles for 

State, Local, and Indian Tribal 

Governments.’’ The allowability of costs 

incurred by non-profit organizations is 

determined in accordance with the 

provisions of OMB Circular A–122, 

‘‘Cost Principles for Non-Profit 

Organizations.’’ The allowability of 

costs incurred by institutions of higher 

education is determined in accordance 

with the provisions of OMB Circular A–

21, ‘‘Cost Principles for Educational 

Institutions.’’ The allowability of costs 

incurred by hospitals is determined in 

accordance with the provisions of 

Appendix E of 45 CFR part 74, 

‘‘Principles for Determining Costs 

Applicable to Research and 

Development Under Grants and 

Contracts with Hospitals.’’ The 

allowability of costs incurred by 

commercial organizations and those 

non-profit organizations listed in 

Attachment C to Circular A–122 is 

determined in accordance with the 

provisions of the Federal Acquisition 

Regulation (FAR) at 48 CFR part 31. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.28 Period of availability of funds. 

Where a funding period is specified, 

a recipient may charge to the grant only 

allowable costs resulting from 

obligations incurred during the funding 

period and any pre-award costs 

authorized by the Federal awarding 

agency. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.29 Conditional exemptions. 

(a) OMB authorizes conditional 

exemption from OMB administrative 

requirements and cost principles 

circulars for certain Federal programs 

with statutorily-authorized consolidated 

planning and consolidated 

administrative funding, that are 

identified by a Federal agency and 

approved by the head of the Executive 

department or establishment. A Federal 

agency shall consult with OMB during 

its consideration of whether to grant 

such an exemption. 

(b) To promote efficiency in State and 

local program administration, when 

Federal non-entitlement programs with 

common purposes have specific 

statutorily-authorized consolidated 

planning and consolidated 

administrative funding and where most 

of the State agency’s resources come 

from non-Federal sources, Federal 

agencies may exempt these covered 

State-administered, non-entitlement 

grant programs from certain OMB grants 

management requirements. The 

exemptions would be from all but the 

allocability of costs provisions of OMB 

Circulars A–87 (Attachment A, 

subsection C.3), ‘‘Cost Principles for 

State, Local, and Indian Tribal 

Governments,’’ A–21 (Section C, subpart 

4), ‘‘Cost Principles for Educational 

Institutions,’’ and A–122 (Attachment 

A, subsection A.4), ‘‘Cost Principles for 

Non-Profit Organizations,’’ and from all 

of the administrative requirements 

provisions of OMB Circular A–110, 

‘‘Uniform Administrative Requirements 

for Grants and Agreements with 

Institutions of Higher Education, 

Hospitals, and Other Non-Profit 

Organizations,’’ and part 43 of this 

chapter. 

(c) When a Federal agency provides 

this flexibility, as a prerequisite to a 

State’s exercising this option, a State 

must adopt its own written fiscal and 

administrative requirements for 

expending and accounting for all funds, 

which are consistent with the 

provisions of OMB Circular A–87, and 

extend such policies to all 

subrecipients. These fiscal and 

administrative requirements must be 

sufficiently specific to ensure that: 

Funds are used in compliance with all 

applicable Federal statutory and 

regulatory provisions, costs are 

reasonable and necessary for operating 

these programs, and funds are not be 

used for general expenses required to 

carry out other responsibilities of a State 

or its subrecipients. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Property Standards 

§ 49.30 Purpose of property standards. 

Sections 49.31 through 49.37 set forth 

uniform standards governing 

management and disposition of property 

furnished by the Federal Government 

whose cost was charged to a project 

supported by a Federal award. Federal 

awarding agencies shall require 

recipients to observe these standards 

under awards and shall not impose 

additional requirements, unless 

specifically required by Federal statute. 

The recipient may use its own property 

management standards and procedures 

provided it observes the provisions of 

§§ 49.31 through 49.37. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.31 Insurance coverage. 

Recipients shall, at a minimum, 

provide the equivalent insurance 

coverage for real property and 

equipment acquired with Federal funds 

as provided to property owned by the 

recipient. Federally-owned property 

need not be insured unless required by 

the terms and conditions of the award. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.32 Real property. 

Each Federal awarding agency shall 

prescribe requirements for recipients 

concerning the use and disposition of 

real property acquired in whole or in 

part under awards. Unless otherwise 

provided by statute, such requirements, 

at a minimum, shall contain the 

following: 

(a) Title to real property shall vest in 

the recipient subject to the condition 

that the recipient shall use the real 

property for the authorized purpose of 

the project as long as it is needed and 

shall not encumber the property without 

approval of the Federal awarding 

agency. 

(b) The recipient shall obtain written 

approval by the Federal awarding 

agency for the use of real property in 

other federally-sponsored projects when 

the recipient determines that the 

property is no longer needed for the 

52270 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

purpose of the original project. Use in 

other projects shall be limited to those 

under federally-sponsored projects (i.e., 

awards) or programs that have purposes 

consistent with those authorized for 

support by the Federal awarding agency. 

(c) When the real property is no 

longer needed as provided in 

paragraphs (a) and (b) of this section, 

the recipient shall request disposition 

instructions from the Federal awarding 

agency or its successor Federal 

awarding agency. The Federal awarding 

agency shall observe one or more of the 

following disposition instructions. 

(1) The recipient may be permitted to 

retain title without further obligation to 

the Federal Government after it 

compensates the Federal Government 

for that percentage of the current fair 

market value of the property attributable 

to the Federal participation in the 

project. 

(2) The recipient may be directed to 

sell the property under guidelines 

provided by the Federal awarding 

agency and pay the Federal Government 

for that percentage of the current fair 

market value of the property attributable 

to the Federal participation in the 

project (after deducting actual and 

reasonable selling and fix-up expenses, 

if any, from the sales proceeds). When 

the recipient is authorized or required to 

sell the property, proper sales 

procedures shall be established that 

provide for competition to the extent 

practicable and result in the highest 

possible return. 

(3) The recipient may be directed to 

transfer title to the property to the 

Federal Government or to an eligible 

third party provided that, in such cases, 

the recipient shall be entitled to 

compensation for its attributable 

percentage of the current fair market 

value of the property. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.33 Federally-owned and exempt 

property. 

(a) Federally-owned property. (1) Title 

to federally-owned property remains 

vested in the Federal Government. 

Recipients shall submit annually an 

inventory listing of federally-owned 

property in their custody to the Federal 

awarding agency. Upon completion of 

the award or when the property is no 

longer needed, the recipient shall report 

the property to the Federal awarding 

agency for further Federal agency 

utilization. 

(2) If the Federal awarding agency has 

no further need for the property, it shall 

be declared excess and reported to the 

General Services Administration, unless 

the Federal awarding agency has 

statutory authority to dispose of the 

property by alternative methods (e.g., 

the authority provided by the Federal 

Technology Transfer Act (15 U.S.C. 

3710(I)) to donate research equipment to 

educational and non-profit 

organizations in accordance with E.O. 

12821, ‘‘Improving Mathematics and 

Science Education in Support of the 

National Education Goals.’’) 

Appropriate instructions shall be issued 

to the recipient by the Federal awarding 

agency. 

(b) Exempt property. When statutory 

authority exists, the Federal awarding 

agency has the option to vest title to 

property acquired with Federal funds in 

the recipient without further obligation 

to the Federal Government and under 

conditions the Federal awarding agency 

considers appropriate. Such property is 

‘‘exempt property.’’ Should a Federal 

awarding agency not establish 

conditions, title to exempt property 

upon acquisition shall vest in the 

recipient without further obligation to 

the Federal Government. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.34 Equipment. 

(a) Title to equipment acquired by a 

recipient with Federal funds shall vest 

in the recipient, subject to conditions of 

this section. 

(b) The recipient shall not use 

equipment acquired with Federal funds 

to provide services to non-Federal 

outside organizations for a fee that is 

less than private companies charge for 

equivalent services, unless specifically 

authorized by Federal statute, for as 

long as the Federal Government retains 

an interest in the equipment. 

(c) The recipient shall use the 

equipment in the project or program for 

which it was acquired as long as 

needed, whether or not the project or 

program continues to be supported by 

Federal funds and shall not encumber 

the property without approval of the 

Federal awarding agency. When no 

longer needed for the original project or 

program, the recipient shall use the 

equipment in connection with its other 

federally-sponsored activities, in the 

following order of priority: 

(1) Activities sponsored by the 

Federal awarding agency, which funded 

the original project, then 

(2) Activities sponsored by other 

Federal awarding agencies. 

(d) During the time that equipment is 

used on the project or program for 

which it was acquired, the recipient 

shall make it available for use on other 

projects or programs if such other use 

will not interfere with the work on the 

project or program for which the 

equipment was originally acquired. First 

preference for such other use shall be 

given to other projects or programs 

sponsored by the Federal awarding 

agency that financed the equipment; 

second preference shall be given to 

projects or programs sponsored by other 

Federal awarding agencies. If the 

equipment is owned by the Federal 

Government, use on other activities not 

sponsored by the Federal Government 

shall be permissible if authorized by the 

Federal awarding agency. User charges 

shall be treated as program income. 

(e) When acquiring replacement 

equipment, the recipient may use the 

equipment to be replaced as trade-in or 

sell the equipment and use the proceeds 

to offset the costs of the replacement 

equipment subject to the approval of the 

Federal awarding agency. 

(f) The recipient’s property 

management standards for equipment 

acquired with Federal funds and 

federally-owned equipment shall 

include all of the following. 

(1) Equipment records shall be 

maintained accurately and shall include 

the following information. 

(i) A description of the equipment. 

(ii) Manufacturer’s serial number, 

model number, Federal stock number, 

national stock number, or other 

identification number. 

(iii) Source of the equipment, 

including the award number. 

(iv) Whether title vests in the 

recipient or the Federal Government. 

(v) Acquisition date (or date received, 

if the equipment was furnished by the 

Federal Government) and cost. 

(vi) 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). 

(vii) Location and condition of the 

equipment and the date the information 

was reported. 

(viii) Unit acquisition cost. 

(ix) 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. 

(2) Equipment owned by the Federal 

Government shall be identified to 

indicate Federal ownership. 

(3) A physical inventory of equipment 

shall be taken and the results reconciled 

with the equipment records at least once 

every two years. Any differences 

between quantities determined by the 

physical inspection and those shown in 

the accounting records shall be 

investigated to determine the causes of 

the difference. The recipient shall, in 

connection with the inventory, verify 

the existence, current utilization, and 

continued need for the equipment. 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52271 

(4) A control system shall be in effect 

to insure adequate safeguards to prevent 

loss, damage, or theft of the equipment. 

Any loss, damage, or theft of equipment 

shall be investigated and fully 

documented; if the equipment was 

owned by the Federal Government, the 

recipient shall promptly notify the 

Federal awarding agency. 

(5) Adequate maintenance procedures 

shall be implemented to keep the 

equipment in good condition. 

(6) Where the recipient is authorized 

or required to sell the equipment, 

proper sales procedures shall be 

established which provide for 

competition to the extent practicable 

and result in the highest possible return. 

(g) When the recipient no longer 

needs the equipment, the equipment 

may be used for other activities in 

accordance with the following 

standards. For equipment with a current 

per unit fair market value of $5000 or 

more, the recipient may retain the 

equipment for other uses provided that 

compensation is made to the original 

Federal awarding agency or its 

successor. The amount of compensation 

shall be computed by applying the 

percentage of Federal participation in 

the cost of the original project or 

program to the current fair market value 

of the equipment. If the recipient has no 

need for the equipment, the recipient 

shall request disposition instructions 

from the Federal awarding agency. The 

Federal awarding agency shall 

determine whether the equipment can 

be used to meet the agency’s 

requirements. If no requirement exists 

within that agency, the availability of 

the equipment shall be reported to the 

General Services Administration by the 

Federal awarding agency to determine 

whether a requirement for the 

equipment exists in other Federal 

agencies. The Federal awarding agency 

shall issue instructions to the recipient 

no later than 120 calendar days after the 

recipient’s request and the following 

procedures shall govern. 

(1) If so instructed or if disposition 

instructions are not issued within 120 

calendar days after the recipient’s 

request, the recipient shall sell the 

equipment and reimburse the Federal 

awarding agency an amount computed 

by applying to the sales proceeds the 

percentage of Federal participation in 

the cost of the original project or 

program. However, the recipient shall 

be permitted to deduct and retain from 

the Federal share $500 or ten percent of 

the proceeds, whichever is less, for the 

recipient’s selling and handling 

expenses. 

(2) If the recipient is instructed to 

ship the equipment elsewhere, the 

recipient shall be reimbursed by the 

Federal Government by an amount 

which is computed by applying the 

percentage of the recipient’s 

participation in the cost of the original 

project or program to the current fair 

market value of the equipment, plus any 

reasonable shipping or interim storage 

costs incurred. 

(3) If the recipient is instructed to 

otherwise dispose of the equipment, the 

recipient shall be reimbursed by the 

Federal awarding agency for such costs 

incurred in its disposition. 

(4) The Federal awarding agency may 

reserve the right to transfer the title to 

the Federal Government or to a third 

party named by the Federal Government 

when such third party is otherwise 

eligible under existing statutes. Such 

transfer shall be subject to the following 

standards. 

(i) The equipment shall be 

appropriately identified in the award or 

otherwise made known to the recipient 

in writing. 

(ii) The Federal awarding agency shall 

issue disposition instructions within 

120 calendar days after receipt of a final 

inventory. The final inventory shall list 

all equipment acquired with grant funds 

and federally-owned equipment. If the 

Federal awarding agency fails to issue 

disposition instructions within the 120 

calendar day period, the recipient shall 

apply the standards of this section, as 

appropriate. 

(iii) When the Federal awarding 

agency exercises its right to take title, 

the equipment shall be subject to the 

provisions for federally-owned 

equipment. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.35 Supplies and other expendable 

property. 

(a) Title to supplies and other 

expendable property shall vest in the 

recipient upon acquisition. If there is a 

residual inventory of unused supplies 

exceeding $5000 in total aggregate value 

upon termination or completion of the 

project or program and the supplies are 

not needed for any other federallysponsored project or program, the 

recipient shall retain the supplies for 

use on non-Federal sponsored activities 

or sell them, but shall, in either case, 

compensate the Federal Government for 

its share. The amount of compensation 

shall be computed in the same manner 

as for equipment. 

(b) The recipient shall not use 

supplies acquired with Federal funds to 

provide services to non-Federal outside 

organizations for a fee that is less than 

private companies charge for equivalent 

services, unless specifically authorized 

by Federal statute as long as the Federal 

Government retains an interest in the 

supplies. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.36 Intangible property. 

(a) The recipient may copyright any 

work that is subject to copyright and 

was developed, or for which ownership 

was purchased, under an award. The 

Federal awarding agency(ies) reserve a 

royalty-free, nonexclusive and 

irrevocable right to reproduce, publish, 

or otherwise use the work for Federal 

purposes, and to authorize others to do 

so. 

(b) Recipients are subject to 

applicable regulations governing patents 

and inventions, including governmentwide regulations issued by the 

Department of Commerce at 37 CFR part 

401, ‘‘Rights to Inventions Made by 

Nonprofit Organizations and Small 

Business Firms Under Government 

Grants, Contracts and Cooperative 

Agreements.’’

(c) The Federal Government has the 

right to: 

(1) Obtain, reproduce, publish or 

otherwise use the data first produced 

under an award; and 

(2) Authorize others to receive, 

reproduce, publish, or otherwise use 

such data for Federal purposes. 

(d)(1) In addition, in response to a 

Freedom of Information Act (FOIA) 

request for research data relating to 

published research findings produced 

under an award that were used by the 

Federal Government in developing an 

agency action that has the force and 

effect of law, the Federal awarding 

agency shall request, and the recipient 

shall provide, within a reasonable time, 

the research data so that they can be 

made available to the public through the 

procedures established under the FOIA. 

If the Federal awarding agency obtains 

the research data solely in response to 

an FOIA request, the agency may charge 

the requester a reasonable fee equaling 

the full incremental cost of obtaining 

the research data. This fee should reflect 

costs incurred by the agency, the 

recipient, and applicable subrecipients. 

This fee is in addition to any fees the 

agency may assess under the FOIA (5 

U.S.C. 522(a)(4)(A)). 

(2) The following definitions apply for 

purposes of paragraph (d) of this 

section: 

(i) Research data is defined as the 

recorded factual material commonly 

accepted in the scientific community as 

necessary to validate research findings, 

but not any of the following: 

preliminary analyses, drafts of scientific 

papers, plans for future research, peer 

reviews, or communications with 

colleagues. This ‘‘recorded’’ material 

52272 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

excludes physical objects (e.g., 

laboratory samples). Research data also 

do not include: 

(A) Trade secrets, commercial 

information, materials necessary to be 

held confidential by a researcher until 

they are published, or similar 

information which is protected under 

law; and 

(B) Personnel and medical 

information and similar information the 

disclosure of which would constitute a 

clearly unwarranted invasion of 

personal privacy, such as information 

that could be used to identify a 

particular person in a research study. 

(ii) Published is defined as either 

when: 

(A) Research findings are published in 

a peer-reviewed scientific or technical 

journal; or 

(B) A Federal agency publicly and 

officially cites the research findings in 

support of an agency action that has the 

force and effect of law. 

(iii) Used by the Federal Government 

in developing an agency action that has 

the force and effect of law is defined as 

when an agency publicly and officially 

cites the research findings in support of 

an agency action that has the force and 

effect of law. 

(e) Title to intangible property and 

debt instruments acquired under an 

award or subaward vests upon 

acquisition in the recipient. The 

recipient shall use that property for the 

originally-authorized purpose, and the 

recipient shall not encumber the 

property without approval of the 

Federal awarding agency. When no 

longer needed for the originally 

authorized purpose, disposition of the 

intangible property shall occur in 

accordance with the provisions of 

§ 49.34(g). 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.37 Property trust relationship. 

Real property, equipment, intangible 

property and debt instruments that are 

acquired or improved with Federal 

funds shall be held in trust by the 

recipient as trustee for the beneficiaries 

of the project or program under which 

the property was acquired or improved. 

Agencies may require recipients to 

record liens or other appropriate notices 

of record to indicate that personal or 

real property has been acquired or 

improved with Federal funds and that 

use and disposition conditions apply to 

the property. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Procurement Standards 

§ 49.40 Purpose of procurement 

standards. 

Sections 49.41 through 49.48 set 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. These standards are furnished to 

ensure that such materials and services 

are obtained in an effective manner and 

in compliance with the provisions of 

applicable Federal statutes and 

executive orders. No additional 

procurement standards or requirements 

shall be imposed by the Federal 

awarding agencies upon recipients, 

unless specifically required by Federal 

statute or executive order or approved 

by OMB. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.41 Recipient responsibilities. 

The standards contained in §§ 49.41 

through 49.48 do not relieve the 

recipient of the contractual 

responsibilities arising under its 

contract(s). The recipient is the 

responsible authority, without recourse 

to the Federal awarding agency, 

regarding the settlement and satisfaction 

of all contractual and administrative 

issues arising out of procurements 

entered into in support of an award or 

other agreement. This includes disputes, 

claims, protests of award, source 

evaluation or other matters of a 

contractual nature. Matters concerning 

violation of statute are to be referred to 

such Federal, State or local authority as 

may have proper jurisdiction. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.42 Codes of conduct. 

The recipient shall maintain written 

standards of conduct governing the 

performance of its employees engaged 

in the award and administration of 

contracts. No employee, officer, or agent 

shall participate in the selection, award, 

or administration of a contract 

supported by Federal funds if a real or 

apparent conflict of interest would be 

involved. Such a conflict would arise 

when the employee, officer, or agent, 

any member of his or her immediate 

family, his or her partner, or an 

organization which employs or is about 

to employ any of the parties indicated 

herein, has a financial or other interest 

in the firm selected for an award. The 

officers, employees, and agents of the 

recipient shall neither solicit nor accept 

gratuities, favors, or anything of 

monetary value from contractors, or 

parties to subagreements. However, 

recipients may set standards for 

situations in which the financial interest 

is not substantial or the gift is an 

unsolicited item of nominal value. The 

standards of conduct shall provide for 

disciplinary actions to be applied for 

violations of such standards by officers, 

employees, or agents of the recipient. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.43 Competition. 

All procurement transactions shall be 

conducted in a manner to provide, to 

the maximum extent practical, open and 

free competition. The recipient shall be 

alert to organizational conflicts of 

interest as well as noncompetitive 

practices among contractors that may 

restrict or eliminate competition or 

otherwise restrain trade. In order to 

ensure objective contractor performance 

and eliminate unfair competitive 

advantage, contractors that develop or 

draft specifications, requirements, 

statements of work, invitations for bids 

and/or requests for proposals shall be 

excluded from competing for such 

procurements. Awards shall be made to 

the bidder or offeror whose bid or offer 

is responsive to the solicitation and is 

most advantageous to the recipient, 

price, quality and other factors 

considered. Solicitations shall clearly 

set forth all requirements that the bidder 

or offeror shall fulfill in order for the bid 

or offer to be evaluated by the recipient. 

Any and all bids or offers may be 

rejected when it is in the recipient’s 

interest to do so. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.44 Procurement procedures. 

(a) All recipients shall establish 

written procurement procedures. These 

procedures shall provide for, at a 

minimum, that all of the following 

conditions apply. 

(1) Recipients avoid purchasing 

unnecessary items. 

(2) Where appropriate, an analysis is 

made of lease and purchase alternatives 

to determine which would be the most 

economical and practical procurement 

for the Federal Government. 

(3) Solicitations for goods and 

services provide for all of the following. 

(i) A clear and accurate description of 

the technical requirements for the 

material, product or service to be 

procured. In competitive procurements, 

such a description shall not contain 

features, which unduly restrict 

competition. 

(ii) Requirements, which the bidder/ 

offeror must fulfill, and all other factors 

to be used in evaluating bids or 

proposals. 

(iii) A description, whenever 

practicable, of technical requirements in 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52273 

terms of functions to be performed or 

performance required, including the 

range of acceptable characteristics or 

minimum acceptable standards. 

(iv) The specific features of ‘‘brand 

name or equal’’ descriptions that 

bidders are required to meet when such 

items are included in the solicitation. 

(v) The acceptance, to the extent 

practicable and economically feasible, 

of products and services dimensioned in 

the metric system of measurement. 

(vi) Preference, to the extent 

practicable and economically feasible, 

for products and services that conserve 

natural resources and protect the 

environment and are energy efficient. 

(b) Positive efforts shall be made by 

recipients to utilize small businesses, 

minority-owned firms, and women’s 

business enterprises, whenever possible. 

Recipients of Federal awards shall take 

all of the following steps to further this 

goal. 

(1) Ensure that small businesses, 

minority-owned firms, and women’s 

business enterprises are used to the 

fullest extent practicable. 

(2) Make information on forthcoming 

opportunities available and arrange time 

frames for purchases and contracts to 

encourage and facilitate participation by 

small businesses, minority-owned firms, 

and women’s business enterprises. 

(3) Consider in the contract process 

whether firms competing for larger 

contracts intend to subcontract with 

small businesses, minority-owned firms, 

and women’s business enterprises. 

(4) Encourage contracting with 

consortiums of small businesses, 

minority-owned firms and women’s 

business enterprises when a contract is 

too large for one of these firms to handle 

individually. 

(5) Use the services and assistance, as 

appropriate, of such organizations as the 

Small Business Administration and the 

Department of Commerce’s Minority 

Business Development Agency in the 

solicitation and utilization of small 

businesses, minority-owned firms and 

women’s business enterprises. 

(c) The type of procuring instruments 

used (e.g., fixed price contracts, cost 

reimbursable contracts, purchase orders, 

and incentive contracts) shall be 

determined by the recipient but shall be 

appropriate for the particular 

procurement and for promoting the best 

interest of the program or project 

involved. The ‘‘cost-plus-a-percentageof-cost’’ or ‘‘percentage of construction 

cost’’ methods of contracting shall not 

be used. 

(d) Contracts shall be made only with 

responsible contractors who possess the 

potential ability to perform successfully 

under the terms and conditions of the 

proposed procurement. Consideration 

shall be given to such matters as 

contractor integrity, record of past 

performance, financial and technical 

resources or accessibility to other 

necessary resources. In certain 

circumstances, contracts with certain 

parties are restricted by agencies’

implementation of E.O.s 12549 and 

12689, ‘‘Debarment and Suspension.’’

(e) Recipients shall, on request, make 

available for the Federal awarding 

agency, pre-award review and 

procurement documents, such as 

request for proposals or invitations for 

bids, independent cost estimates, etc., 

when any of the following conditions 

apply. 

(1) A recipient’s procurement 

procedures or operation fails to comply 

with the procurement standards in the 

Federal awarding agency’s 

implementation of this part. 

(2) The procurement is expected to 

exceed the small purchase threshold 

fixed at 41 U.S.C. 403 (11) (currently 

$25,000) and is to be awarded without 

competition or only one bid or offer is 

received in response to a solicitation. 

(3) The procurement, which is 

expected to exceed the small purchase 

threshold, specifies a ‘‘brand name’’

product. 

(4) The proposed award over the 

small purchase threshold is to be 

awarded to other than the apparent low 

bidder under a sealed bid procurement. 

(5) A proposed contract modification 

changes the scope of a contract or 

increases the contract amount by more 

than the amount of the small purchase 

threshold. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.45 Cost and price analysis. 

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. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.46 Procurement records. 

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. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.47 Contract administration. 

A system for contract administration 

shall be maintained to ensure contractor 

conformance with the terms, conditions 

and specifications of the contract and to 

ensure adequate and timely follow up of 

all purchases. Recipients shall evaluate 

contractor performance and document, 

as appropriate, whether contractors 

have met the terms, conditions and 

specifications of the contract. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.48 Contract provisions. 

The recipient shall include, in 

addition to provisions to define a sound 

and complete agreement, the following 

provisions in all contracts. The 

following provisions shall also be 

applied to subcontracts. 

(a) Contracts in excess of the small 

purchase threshold shall contain 

contractual provisions or conditions 

that allow for administrative, 

contractual, or legal remedies in 

instances in which a contractor violates 

or breaches the contract terms, and 

provide for such remedial actions as 

may be appropriate. 

(b) All contracts in excess of the small 

purchase threshold shall contain 

suitable provisions for termination by 

the recipient, including the manner by 

which termination shall be effected and 

the basis for settlement. In addition, 

such contracts shall describe conditions 

under which the contract may be 

terminated for default as well as 

conditions where the contract may be 

terminated because of circumstances 

beyond the control of the contractor. 

(c) Except as otherwise required by 

statute, an award that requires the 

contracting (or subcontracting) for 

construction or facility improvements 

shall provide for the recipient to follow 

its own requirements relating to bid 

guarantees, performance bonds, and 

payment bonds unless the construction 

contract or subcontract exceeds 

$100,000. For those contracts or 

subcontracts exceeding $100,000, the 

Federal awarding agency may accept the 

bonding policy and requirements of the 

recipient, provided the Federal 

awarding agency has made a 

determination that the Federal 

Government’s interest is adequately 

protected. If such a determination has 

not been made, the minimum 

requirements shall be as follows. 

(1) A bid guarantee from each bidder 

equivalent to five percent of the bid 

price. The ‘‘bid guarantee’’ shall consist 

of a firm commitment such as a bid 

52274 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

bond, certified check, or other 

negotiable instrument accompanying a 

bid as assurance that the bidder shall, 

upon acceptance of his bid, execute 

such contractual documents as may be 

required within the time specified. 

(2) A performance bond on the part of 

the contractor for 100 percent of the 

contract price. A ‘‘performance bond’’ is 

one executed in connection with a 

contract to secure fulfillment of all the 

contractor’s obligations under such 

contract. 

(3) A payment bond on the part of the 

contractor for 100 percent of the 

contract price. A ‘‘payment bond’’ is one 

executed in connection with a contract 

to assure payment as required by statute 

of all persons supplying labor and 

material in the execution of the work 

provided for in the contract. 

(4) Where bonds are required in the 

situations described herein, the bonds 

shall be obtained from companies 

holding certificates of authority as 

acceptable sureties pursuant to 31 CFR 

part 223, ‘‘Surety Companies Doing 

Business with the United States.’’

(d) All negotiated contracts (except 

those for less than the small purchase 

threshold) awarded by recipients shall 

include a provision to the effect that the 

recipient, the Federal awarding agency, 

the Comptroller General of the United 

States, or any of their duly authorized 

representatives, shall have access to any 

books, documents, papers and records 

of the contractor which are directly 

pertinent to a specific program for the 

purpose of making audits, examinations, 

excerpts and transcriptions. 

(e) All contracts, including small 

purchases, awarded by recipients and 

their contractors shall contain the 

procurement provisions of Appendix A 

to this part, as applicable. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Reports and Records 

§ 49.50 Purpose of reports and records. 

Sections 49.51 through 49.53 set 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. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.51 Monitoring and reporting program 

performance. 

(a) Recipients are responsible for 

managing and monitoring each project, 

program, subaward, function or activity 

supported by the award. Recipients 

shall monitor subawards to ensure 

subrecipients have met the audit 

requirements as delineated in § 49.26. 

(b) The Federal awarding agency shall 

prescribe the frequency with which the 

performance reports shall be submitted. 

Except as provided in § 49.51(f) of this 

section, performance reports shall not 

be required more frequently than 

quarterly or, less frequently than 

annually. 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 Federal awarding agency may 

require annual reports before the 

anniversary dates of multiple year 

awards in lieu of these requirements. 

The final performance reports are due 

90 calendar days after the expiration or 

termination of the award. 

(c) If inappropriate, a final technical 

or performance report shall not be 

required after completion of the project. 

(d) When required, performance 

reports shall generally contain, for each 

award, brief information on each of the 

following. 

(1) A comparison of actual 

accomplishments with the goals and 

objectives established for the period, the 

findings of the investigator, or both. 

Whenever appropriate and the output of 

programs or projects can be readily 

quantified, such quantitative data 

should be related to cost data for 

computation of unit costs. 

(2) Reasons why established goals 

were not met, if appropriate. 

(3) Other pertinent information 

including, when appropriate, analysis 

and explanation of cost overruns or high 

unit costs. 

(e) Recipients shall not be required to 

submit more than the original and two 

copies of performance reports. 

(f) Recipients shall immediately notify 

the Federal awarding agency of 

developments that have a significant 

impact on the award-supported 

activities. Also, notification shall be 

given in the case of problems, delays, or 

adverse conditions which materially 

impair the ability to meet the objectives 

of the award. This notification shall 

include a statement of the action taken 

or contemplated, and any assistance 

needed to resolve the situation. 

(g) Federal awarding agencies may 

make site visits, as needed. 

(h) Federal awarding agencies shall 

comply with clearance requirements of 

5 CFR part 1320 when requesting 

performance data from recipients. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.52 Financial reporting. 

(a) The following forms or such other 

forms as may be approved by OMB are 

authorized for obtaining financial 

information from recipients. 

(1) SF–269 or SF–269A, Financial 

Status Report. 

(i) Each Federal awarding agency 

shall require recipients to use the SF–

269 or SF–269A to report the status of 

funds for all nonconstruction projects or 

programs. A Federal awarding agency 

may, however, have the option of not 

requiring the SF–269 or SF–269A when 

the SF–270, Request for Advance or 

Reimbursement, or SF–272, Report of 

Federal Cash Transactions, is 

determined to provide adequate 

information to meet its needs, except 

that a final SF–269 or SF–269A shall be 

required at the completion of the project 

when the SF–270 is used only for 

advances. 

(ii) The Federal awarding agency shall 

prescribe whether the report shall be on 

a cash or accrual basis. If the Federal 

awarding agency requires accrual 

information and the recipient’s 

accounting records are not normally 

kept on the accrual basis, the recipient 

shall not be required to convert its 

accounting system, but shall develop 

such accrual information through best 

estimates based on an analysis of the 

documentation on hand. 

(iii) The Federal awarding agency 

shall determine the frequency of the 

Financial Status Report for each project 

or program, considering the size and 

complexity of the particular project or 

program. However, the report shall not 

be required more frequently than 

quarterly or less frequently than 

annually. A final report shall be 

required at the completion of the 

agreement. 

(iv) The Federal awarding agency 

shall require recipients to submit the 

SF–269 or SF–269A (an original and no 

more than two copies) no later than 30 

days after the end of each specified 

reporting period for quarterly and semiannual reports, and 90 calendar days for 

annual and final reports. Extensions of 

reporting due dates may be approved by 

the Federal awarding agency upon 

request of the recipient. 

(2) SF–272, Report of Federal Cash 

Transactions. 

(i) When funds are advanced to 

recipients the Federal awarding agency 

shall require each recipient to submit 

the SF–272 and, when necessary, its 

continuation sheet, SF–272a. The 

Federal awarding agency shall use this 

report to monitor cash advanced to 

recipients and to obtain disbursement 

information for each agreement with the 

recipients. 

(ii) Federal awarding agencies may 

require forecasts of Federal cash 

requirements in the ‘‘Remarks’’ section 

of the report. 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52275 

(iii) When practical and deemed 

necessary, Federal awarding agencies 

may require recipients to report in the 

‘‘Remarks’’ section the amount of cash 

advances received in excess of three 

days. Recipients shall provide short 

narrative explanations of actions taken 

to reduce the excess balances. 

(iv) Recipients shall be required to 

submit not more than the original and 

two copies of the SF–272 15 calendar 

days following the end of each quarter. 

The Federal awarding agencies may 

require a monthly report from those 

recipients receiving advances totaling 

$1 million or more per year. 

(v) Federal awarding agencies may 

waive the requirement for submission of 

the SF–272 for any one of the following 

reasons: 

(A) When monthly advances do not 

exceed $25,000 per recipient, provided 

that such advances are monitored 

through other forms contained in this 

section; 

(B) If, in the Federal awarding 

agency’s opinion, the recipient’s 

accounting controls are adequate to 

minimize excessive Federal advances; 

or, 

(C) When the electronic payment 

mechanisms provide adequate data. 

(b) When the Federal awarding agency 

needs additional information or more 

frequent reports, the following shall be 

observed. 

(1) When additional information is 

needed to comply with legislative 

requirements, Federal awarding 

agencies shall issue instructions to 

require recipients to submit such 

information under the ‘‘Remarks’’

section of the reports. 

(2) When a Federal awarding agency 

determines that a recipient’s accounting 

system does not meet the standards in 

§ 49.21, additional pertinent 

information to further monitor awards 

may be obtained upon written notice to 

the recipient until such time as the 

system is brought up to standard. The 

Federal awarding agency, in obtaining 

this information, shall comply with 

report clearance requirements of 5 CFR 

part 1320. 

(3) Federal awarding agencies are 

encouraged to shade out any line item 

on any report if not necessary. 

(4) Federal awarding agencies may 

accept the identical information from 

the recipients in machine readable 

format or computer printouts or 

electronic outputs in lieu of prescribed 

formats. 

(5) Federal awarding agencies may 

provide computer or electronic outputs 

to recipients when such expedites or 

contributes to the accuracy of reporting. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.53 Retention and access 

requirements for records. 

(a) This section sets forth 

requirements for record retention and 

access to records for awards to 

recipients. Federal awarding agencies 

shall not impose any other record 

retention or access requirements upon 

recipients. 

(b) 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. The only exceptions are the 

following. 

(1) If any litigation, claim, or audit is 

started before the expiration of the 3- 

year period, the records shall be 

retained until all litigation, claims or 

audit findings involving the records 

have been resolved and final action 

taken. 

(2) Records for real property and 

equipment acquired with Federal funds 

shall be retained for 3 years after final 

disposition. 

(3) When records are transferred to or 

maintained by the Federal awarding 

agency, the 3-year retention requirement 

is not applicable to the recipient. 

(4) Indirect cost rate proposals, cost 

allocations plans, etc. as specified in 

§ 49.53(g) of this section. 

(c) Copies of original records may be 

substituted for the original records if 

authorized by the Federal awarding 

agency. 

(d) The Federal awarding agency shall 

request transfer of certain records to its 

custody from recipients when it 

determines that the records possess long 

term retention value. However, in order 

to avoid duplicate recordkeeping, a 

Federal awarding agency may make 

arrangements for recipients to retain any 

records that are continuously needed for 

joint use. 

(e) The Federal awarding agency, the 

Inspector General, Comptroller General 

of the United States, or any of their duly 

authorized representatives, have the 

right of timely and unrestricted access 

to any books, documents, papers, or 

other records of recipients that are 

pertinent to the awards, in order to 

make audits, examinations, excerpts, 

transcripts and copies of such 

documents. This right also includes 

timely and reasonable access to a 

recipient’s personnel for the purpose of 

interview and discussion related to such 

documents. The rights of access in this 

paragraph are not limited to the 

required retention period, but shall last 

as long as records are retained. 

(f) Unless required by statute, no 

Federal awarding agency shall place 

restrictions on recipients that limit 

public access to the records of recipients 

that are pertinent to an award, except 

when the Federal awarding agency can 

demonstrate that such records shall be 

kept confidential and would have been 

exempted from disclosure pursuant to 

the Freedom of Information Act (5 

U.S.C. 552) if the records had belonged 

to the Federal awarding agency. 

(g) Indirect cost rate proposals, cost 

allocations plans, etc. Paragraphs (g)(1) 

and (g)(2) of this section apply to the 

following types of documents, and their 

supporting records: indirect cost rate 

computations or proposals, cost 

allocation plans, and any similar 

accounting computations of the rate at 

which a particular group of costs is 

chargeable (such as computer usage 

chargeback rates or composite fringe 

benefit rates). 

(1) If submitted for negotiation. If the 

recipient submits to the Federal 

awarding agency or the subrecipient 

submits to the recipient the proposal, 

plan, or other computation to form the 

basis for negotiation of the rate, then the 

3-year retention period for its 

supporting records starts on the date of 

such submission. 

(2) If not submitted for negotiation. If 

the recipient is not required to submit 

to the Federal awarding agency or the 

subrecipient is not required to submit to 

the recipient the proposal, plan, or other 

computation for negotiation purposes, 

then the 3-year retention period for the 

proposal, plan, or other computation 

and its supporting records starts at the 

end of the fiscal year (or other 

accounting period) covered by the 

proposal, plan, or other computation. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Termination and Enforcement 

§ 49.60 Purpose of termination and 

enforcement. 

Sections 49.61 and 49.62 set forth 

uniform suspension, termination and 

enforcement procedures. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.61 Termination. 

(a) Awards may be terminated in 

whole or in part only if paragraphs 

(a)(1), (a)(2) or (a)(3) of this section 

apply. 

(1) By the Federal awarding agency, if 

a recipient materially fails to comply 

with the terms and conditions of an 

award. 

(2) By the Federal awarding agency 

with the consent of the recipient, in 

52276 Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 

which case the two parties shall agree 

upon the termination conditions, 

including the effective date and, in the 

case of partial termination, the portion 

to be terminated. 

(3) By the recipient upon sending to 

the Federal awarding agency written 

notification setting forth the reasons for 

such termination, the effective date, 

and, in the case of partial termination, 

the portion to be terminated. However, 

if the Federal awarding agency 

determines in the case of partial 

termination that the reduced or 

modified portion of the grant will not 

accomplish the purposes for which the 

grant was made, it may terminate the 

grant in its entirety under either 

paragraphs (a)(1) or (2) of this section. 

(b) If costs are allowed under an 

award, the responsibilities of the 

recipient referred to in § 49.71(a), 

including those for property 

management as applicable, shall be 

considered in the termination of the 

award, and provision shall be made for 

continuing responsibilities of the 

recipient after termination, as 

appropriate. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.62 Enforcement. 

(a) Remedies for noncompliance. If a 

recipient materially fails to comply with 

the terms and conditions of an award, 

whether stated in a Federal statute, 

regulation, assurance, application, or 

notice of award, the Federal awarding 

agency may, in addition to imposing 

any of the special conditions outlined in 

§ 49.14, take one or more of the 

following actions, as appropriate in the 

circumstances. 

(1) Temporarily withhold cash 

payments pending correction of the 

deficiency by the recipient or more 

severe enforcement action by the 

Federal awarding agency. 

(2) Disallow (that is, deny both use of 

funds and any applicable matching 

credit for) all or part of the cost of the 

activity or action not in compliance. 

(3) Wholly or partly suspend or 

terminate the current award. 

(4) Withhold further awards for the 

project or program. 

(5) Take other remedies that may be 

legally available. 

(b) Hearings and appeals. In taking an 

enforcement action, the awarding 

agency shall provide the recipient an 

opportunity for hearing, appeal, or other 

administrative proceeding to which the 

recipient is entitled under any statute or 

regulation applicable to the action 

involved. 

(c) Effects of suspension and 

termination. Costs of a recipient 

resulting from obligations incurred by 

the recipient during a suspension or 

after termination of an award are not 

allowable unless the awarding agency 

expressly authorizes them in the notice 

of suspension or termination or 

subsequently. Other recipient costs 

during suspension or after termination, 

which are necessary and not reasonably 

avoidable, are allowable if the following 

conditions apply. 

(1) The costs result from obligations 

which were properly incurred by the 

recipient before the effective date of 

suspension or termination, are not in 

anticipation of it, and in the case of a 

termination, are noncancellable. 

(2) The costs would be allowable if 

the award were not suspended or 

expired normally at the end of the 

funding period in which the termination 

takes effect. 

(d) Relationship to debarment and 

suspension. The enforcement remedies 

identified in this section, including 

suspension and termination, do not 

preclude a recipient from being subject 

to debarment and suspension under 

E.O.s 12549 and 12689 and the Federal 

awarding agency implementing 

regulations (see § 49.13). 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Subpart D—After-the-Award 

Requirements 

§ 49.70 Purpose. 

Sections 49.71 through 49.73 contain 

closeout procedures and other 

procedures for subsequent 

disallowances and adjustments. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.71 Closeout procedures. 

(a) Recipients 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. 

(b) Unless the Federal awarding 

agency authorizes an extension, a 

recipient shall liquidate all obligations 

incurred under the award not later than 

90 calendar days after the funding 

period or the date of completion as 

specified in the terms and conditions of 

the award or in agency implementing 

instructions. 

(c) The Federal awarding agency shall 

make prompt payments to a recipient 

for allowable reimbursable costs under 

the award being closed out. 

(d) The recipient shall promptly 

refund any balances of unobligated cash 

that the Federal awarding agency has 

advanced or paid and that is not 

authorized to be retained by the 

recipient for use in other projects. OMB 

Circular A–129 governs unreturned 

amounts that become delinquent debts. 

(e) When authorized by the terms and 

conditions of the award, the Federal 

awarding agency shall make a 

settlement for any upward or downward 

adjustments to the Federal share of costs 

after closeout reports are received. 

(f) The recipient shall account for any 

real and personal property acquired 

with Federal funds or received from the 

Federal Government in accordance with 

§§ 49.31 through 49.37. 

(g) In the event a final audit has not 

been performed prior to the closeout of 

an award, the Federal awarding agency 

shall retain the right to recover an 

appropriate amount after fully 

considering the recommendations on 

disallowed costs resulting from the final 

audit. 

(Authority: Pub. L. 104–156, OMB Circular 

A–110) 

§ 49.72 Subsequent adjustments and 

continuing responsibilities. 

(a) The closeout of an award does not 

affect any of the following. 

(1) The right of the Federal awarding 

agency to disallow costs and recover 

funds on the basis of a later audit or 

other review. 

(2) The obligation of the recipient to 

return any funds due as a result of later 

refunds, corrections, or other 

transactions. 

(3) Audit requirements in § 49.26. 

(4) Property management 

requirements in §§ 49.31 through 49.37. 

(5) Records retention as required in 

§ 49.53. 

(b) After closeout of an award, a 

relationship created under an award 

may be modified or ended in whole or 

in part with the consent of the Federal 

awarding agency and the recipient, 

provided the responsibilities of the 

recipient referred to in § 49.73(a), 

including those for property 

management as applicable, are 

considered and provisions made for 

continuing responsibilities of the 

recipient, as appropriate. 

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

§ 49.73 Collection of amounts due. 

(a) Any funds paid to a recipient in 

excess of the amount to which the 

recipient is finally determined to be 

entitled under the terms and conditions 

of the award constitute a debt to the 

Federal Government. If not paid within 

a reasonable period after the demand for 

payment, the Federal awarding agency 

may reduce the debt by any of the 

following methods. 

Federal Register / Vol. 70, No. 169 / Thursday, September 1, 2005 / Rules and Regulations 52277 

(1) Making an administrative offset 

against other requests for 

reimbursements. 

(2) Withholding advance payments 

otherwise due to the recipient. 

(3) Taking other action permitted by 

statute. 

(b) Except as otherwise provided by 

law, the Federal awarding agency shall 

charge interest on an overdue debt in 

accordance with 4 CFR Chapter II, 

‘‘Federal Claims Collection Standards.’’

(Authority: Pub. L. 104–156; 110 Stat. 1396) 

Appendix A to Part 49—Contract 

Provisions 

All contracts, awarded by a recipient 

including small purchases, shall contain the 

following provisions as applicable: 

1. Equal Employment Opportunity—All 

contracts shall contain a provision requiring 

compliance with E.O. 11246, ‘‘Equal 

Employment Opportunity,’’ as amended by 

E.O. 11375, ‘‘Amending Executive Order 

11246 Relating to Equal Employment 

Opportunity,’’ and as supplemented by 

regulations at 41 CFR part 60, ‘‘Office of 

Federal Contract Compliance Programs, 

Equal Employment Opportunity, Department 

of Labor.’’

2. Copeland ‘‘Anti-Kickback’’ Act (18 

U.S.C. 874 and 40 U.S.C. 276c)—All 

contracts and subgrants in excess of $2000 

for construction or repair awarded by 

recipients and subrecipients shall include a 

provision for compliance with the Copeland 

‘‘Anti-Kickback’’ Act (18 U.S.C. 874), as 

supplemented by Department of Labor 

regulations (29 CFR part 3, ‘‘Contractors and 

Subcontractors on Public Building or Public 

Work Financed in Whole or in Part by Loans 

or Grants from the United States’’). The Act 

provides that each contractor or subrecipient 

shall be prohibited from inducing, by any 

means, any person employed in the 

construction, completion, or repair of public 

work, to give up any part of the 

compensation to which he is otherwise 

entitled. The recipient shall report all 

suspected or reported violations to the 

Federal awarding agency. 

3. Davis-Bacon Act, as amended (40 U.S.C. 

276a to a–7)—When required by Federal 

program legislation, all construction 

contracts awarded by the recipients and 

subrecipients of more than $2000 shall 

include a provision for compliance with the 

Davis-Bacon Act (40 U.S.C. 276a to a–7) and 

as supplemented by Department of Labor 

regulations (29 CFR part 5, ‘‘Labor Standards 

Provisions Applicable to Contracts Governing 

Federally Financed and Assisted 

Construction’’). Under this Act, contractors 

shall be required to pay wages to laborers and 

mechanics at a rate not less than the 

minimum wages specified in a wage 

determination made by the Secretary of 

Labor. In addition, contractors shall be 

required to pay wages not less than once a 

week. The recipient shall place a copy of the 

current prevailing wage determination issued 

by the Department of Labor in each 

solicitation and the award of a contract shall 

be conditioned upon the acceptance of the 

wage determination. The recipient shall 

report all suspected or reported violations to 

the Federal awarding agency. 

4. Contract Work Hours and Safety 

Standards Act (40 U.S.C. 327–333)—Where 

applicable, all contracts awarded by 

recipients in excess of $2000 for construction 

contracts and in excess of $2500 for other 

contracts that involve the employment of 

mechanics or laborers shall include a 

provision for compliance with Sections 102 

and 107 of the Contract Work Hours and 

Safety Standards Act (40 U.S.C. 327–333), as 

supplemented by Department of Labor 

regulations (29 CFR part 5). Under Section 

102 of the Act, each contractor shall be 

required to compute the wages of every 

mechanic and laborer on the basis of a 

standard work week of 40 hours. Work in 

excess of the standard work week is 

permissible provided that the worker is 

compensated at a rate of not less than 11⁄2

times the basic rate of pay for all hours 

worked in excess of 40 hours in the work 

week. Section 107 of the Act is applicable to 

construction work and provides that no 

laborer or mechanic shall be required to work 

in surroundings or under working 

conditions, which are unsanitary, hazardous 

or dangerous. These requirements do not 

apply to the purchases of supplies or 

materials or articles ordinarily available on 

the open market, or contracts for 

transportation or transmission of intelligence. 

5. Rights to Inventions Made Under a 

Contract or Agreement—Contracts or 

agreements for the performance of 

experimental, developmental, or research 

work shall provide for the rights of the 

Federal Government and the recipient in any 

resulting invention in accordance with 37 

CFR part 401, ‘‘Rights to Inventions Made by 

Nonprofit Organizations and Small Business 

Firms Under Government Grants, Contracts 

and Cooperative Agreements,’’ and any 

implementing regulations issued by the 

awarding agency. 

6. Clean Air Act (42 U.S.C. 7401 et seq.) 

and the Federal Water Pollution Control Act 

(33 U.S.C. 1251 et seq.), as amended— 

Contracts and subgrants of amounts in excess 

of $100,000 shall contain a provision that 

requires the recipient to agree to comply with 

all applicable standards, orders or regulations 

issued pursuant to the Clean Air Act (42 

U.S.C. 7401 et seq.) and the Federal Water 

Pollution Control Act as amended (33 U.S.C. 

1251 et seq.). Violations shall be reported to 

the Federal awarding agency and the 

Regional Office of the Environmental 

Protection Agency (EPA). 

7. Byrd Anti-Lobbying Amendment (31 

U.S.C. 1352)—Contractors who apply or bid 

for an award of $100,000 or more shall file 

the required certification. Each tier certifies 

to the tier above that it will not and has not 

used Federal appropriated funds to pay any 

person or organization for influencing or 

attempting to influence an officer or 

employee of any agency, a member of 

Congress, officer or employee of Congress, or 

an employee of a member of Congress in 

connection with obtaining any Federal 

contract, grant or any other award covered by 

31 U.S.C. 1352. Each tier shall also disclose 

any lobbying with non-Federal funds that 

takes place in connection with obtaining any 

Federal award. Such disclosures are 

forwarded from tier to tier up to the 

recipient. 

8. Debarment and Suspension (E.O.s 12549 

and 12689)—No contract shall be made to 

parties listed on the General Services 

Administration’s List of Parties Excluded 

from Federal Procurement or 

Nonprocurement Programs in accordance 

with E.O.s 12549 and 12689, ‘‘Debarment and 

Suspension.’’ This list contains the names of 

parties debarred, suspended, or otherwise 

excluded by agencies, and contractors 

declared ineligible under statutory or 

regulatory authority other than E.O. 12549. 

Contractors with awards that exceed the 

small purchase threshold shall provide the 

required certification regarding its exclusion 

status and that of its principal employees. 

[FR Doc. 05–16848 Filed 8–31–05; 8:45 am] 

BILLING CODE 8320–01–P