[Federal Register Volume 62, Number 168 (Friday, August 29, 1997)]
[Notices]
[Pages 45934-45936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22828]


      

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Part III





Office of Management and Budget





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Governmentwide Grants Management Requirements; Notice; Interim Final 
Rules and Proposed Rule

  Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / 
Notices  

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OFFICE OF MANAGEMENT AND BUDGET


Governmentwide Grants Management Requirements

AGENCY: Office of Management and Budget.

ACTION: Final Revision of OMB Circulars A-21, A-87, A-102, A-110 and A-
122 and Interim Final Revision of OMB Circular A-110.

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SUMMARY: The Office of Management and Budget (OMB) is issuing final 
revisions to five OMB circulars and, in addition, OMB is issuing 
interim final amendments to one of these circulars to reflect the 
Single Audit Act Amendments of 1996. The five Circulars are A-21 
(``Cost Principles for Educational Institutions''), A-87 (``Cost 
Principles for State and Local Governments''), A-102 (``Grants and 
Cooperative Agreements with State and Local Governments''), A-110 
(``Uniform Administrative Requirements for Grants and Agreements with 
Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations''), and A-122 (``Cost Principles for Non-Profit 
Organizations''). The purpose of these revisions is to provide a 
conditional exemption from OMB's grants management requirements and a 
conditional class deviation from the agencies' Grants Management Common 
Rule for certain Federal grant 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. Additionally, OMB is issuing 
interim final conforming amendments to Circular A-110 to reflect the 
enactment of the Single Audit Act Amendments of 1996, the recent 
rescission of OMB Circular A-128 (``Audits of State and Local 
Governments''), and the consolidation of its provisions in a revised 
OMB Circular A-133, ``Audits of States, Local Governments, and Non-
Profit Organizations.''

DATES: The final revisions and interim final amendments are effective 
September 29, 1997. All comments on the interim final amendments should 
be in writing and must be received by October 28, 1997. Late comments 
will be considered to the extent practicable.

ADDRESSES: Comments should be mailed to Grants Management Audit Docket, 
Office of Federal Financial Management, Office of Management and 
Budget, Room 6025 New Executive Office Building, Washington, DC 20503. 
Electronic mail (E-mail) comments may be submitted via the Internet to 
[email protected]. Please include the full body of E-mail comments 
in the text of the message and not as an attachment. Please include the 
name, title, organization, postal address, and E-mail address in the 
text of the message.

FOR FURTHER INFORMATION CONTACT: Barbara F. Kahlow, Office of Financial 
Federal Financial Management, Office of Management and Budget, (202) 
395-3053. The revised OMB Circulars A-21, A-87, A-102, A-110, and A-122 
are available electronically on the OMB Home Page at http://
www.whitehouse.gov/WH/EOP/omb. These revised Circulars are also 
available in paper format by contacting the OMB Publications Office at 
(202) 395-7332.

SUPPLEMENTARY INFORMATION: On May 14, 1997, the Office of Management 
and Budget (OMB) proposed a revision (62 FR 26577) of OMB Circulars A-
21, ``Cost Principles for Educational Institutions,'' A-87, ``Cost 
Principles for State and Local Governments,'' A-102, ``Grants and 
Cooperative Agreements with State and Local Governments,'' A-110, 
``Uniform Administrative Requirements for Grants and Agreements with 
Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations,'' and A-122, ``Cost Principles for Non-Profit 
Organizations.'' The proposal would provide a conditional exemption 
from OMB's grants management requirements and a conditional class 
deviation from the agencies' Grants Management Common Rule (GMCR) for 
certain Federal grant 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.
    This exemption could be granted to related Federal non-entitlement 
grant programs which are administered by State and local governments 
and which have the following characteristics: the related programs (1) 
serve a common program purpose, (2) have specific statutorily-
authorized consolidated planning and consolidated administrative 
funding, and (3) are administered by State agencies which are funded 
mostly by non-Federal sources. In order to promote efficiency in the 
State and local program administration of such related programs, 
Federal agencies could exempt these covered State-administered, non-
entitlement grant programs from Federal grants management requirements 
in OMB Circulars A-21, A-87, A-110, and A-122, and the GMCR. The 
exemptions would be from all but the allocability-of-costs provisions 
of Circulars A-21 (Section C, subpart 4), A-87 (Attachment A, 
subsection C.3), and A-122 (Attachment A, subsection A.4), and from all 
of the administrative requirements provisions of Circular A-110 and the 
GMCR.
    A Federal agency would have the discretion to exempt a Federal 
grant program from the Federal grants management requirements. A 
Federal agency shall consult with OMB during its consideration of 
whether to grant such an exemption.
    If a Federal agency exempts a Federal grant program from these 
requirements, a State would only qualify if it adopts 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 extends such requirements 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 to be used for general 
expenses required to carry out other responsibilities of a State or its 
subrecipients. If a State does not adopt such fiscal and administrative 
requirements, then it would continue to be subject to the Federal 
grants management requirements.

Response to Comments

    OMB received eight comment letters: three from Federal agencies, 
one from a local government, two from universities, one from a non-
profit organization, and one from an interest group. Four of the 
letters did not address the substance of the proposed revisions. The 
letter from the local government asked if the proposal had any 
relationship to the recent revision of OMB Circular A-133, ``Audits of 
States, Local Governments, and Non-Profit Organizations,'' on June 24, 
1997 (62 FR 35278); in response to this question, these revisions are 
not related to that revision of Circular A-133. The letter from the 
non-profit organization raised concerns about certain other provisions 
in OMB Circular A-122 which are unrelated to the proposal; OMB will 
consider these concerns in connection with its review of Circular A-
122. A letter from one of the Federal agencies requested an unrelated 
change to the GMCR and OMB Circular A-110; the issue raised will be 
considered during OMB's future review of those provisions. A letter 
from another Federal agency raised concerns

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about OMB's denial of certain other, unrelated waiver requests from 
that agency which would have been applicable only to that agency's 
grant programs.
    The other four letters addressed the substance of the proposed 
revisions. The interest group commenter supported the proposed 
revisions and recommended that the flexibility afforded to State-
administered programs be extended to local-administered programs. This 
recommendation for flexibility for local-administered programs will be 
considered during OMB's future review of the five circulars.
    The two university commenters objected to the proposal because of 
its possible effect on those subrecipients, including subcontractors, 
that are universities. Specifically, the university commenters 
preferred to be subject only to OMB Circulars A-21 and A-110 (and not 
also to State grants management requirements) because ``We have found 
that state government does not always do a good job communicating to us 
what the guidelines are for a given program.'' The university 
commenters stated that they are familiar with Circulars A-21 and A-110 
and ``have systems in place to deal with them.'' Finally, the Federal 
agency commenter found the proposal unclear and felt that ``the funding 
agency needs to have not only accountability, but also the consistent 
accountability afforded by currently imposed Federal cost principles 
and uniform administrative requirements.'' The commenter raised a 
concern about the possible inefficiency of having more than one State 
grants management system, with one for exempted grant programs (and 
other State programs), and one for the rest of the Federal grant 
programs.
    OMB would also be concerned if the proposed changes increased 
burden on State grantees or their subrecipients, as the three 
commenters apparently believed. However, State grants management 
requirements instead of Federal grants management requirements 
currently apply to several previously-exempted Federal programs as well 
as to State-funded programs which have no Federal funding. In 1981 and 
1982, OMB waived the application of Circulars A-21, A-87, A-102, A-110, 
and A-122 for certain, selective State-administered programs. As a 
consequence, OMB believes that the addition of programs with shared, 
statutorily-authorized consolidated planning and consolidated 
administrative funding with these already-exempted programs would not 
result in additional burden on subrecipients and would not result in 
increased inefficiency. Since OMB does not believe that any negative 
effects on grantees or subrecipients will ensue from the proposed 
revisions, OMB is finalizing them.
    Accordingly, to provide such a conditional exemption, OMB is 
adopting the proposed revisions and amending: Section A.3 of Circular 
A-21; Attachment A Section A.3 of Circular A-87; Section 2 of Circular 
A-102; Subpart C of Circular A-110 (as a new Section ____.29 instead of 
as Section ____.45 as proposed); and, Attachment A Section A of 
Circular A-122. The amendments are set forth below.

Interim Final Conforming Amendments

    In addition to adopting the proposed revisions to the five 
circulars, OMB is also making conforming amendments to Circular A-110 
to reflect the enactment of the Single Audit Act Amendments of 1996 
(Public Law 104-156, 110 Stat. 1396) and OMB's rescission of Circular 
A-128 (``Audits of State and Local Governments'') and its issuance of 
the June 24, 1997, revision of OMB Circular A-133 (62 FR 35278, June 
30, 1997). The provisions of the 1996 Act and of the revised Circular 
A-133 apply to audits of fiscal years beginning after June 30, 1996. 
The revised Circular A-133 co-locates audit requirements for States, 
local governments, and non-profit organizations. As a consequence, OMB 
rescinded OMB Circular A-128.
    Currently, Circular A-110 refers to the Single Audit Act of 1984 
(which was superseded by the 1996 Act), to Circular A-128 (which was 
rescinded), and to the former version of OMB Circular A-133 (which 
covered only non-profit organizations, and did not cover State and 
local governments). These interim final conforming amendments update 
these references. Additional conforming changes were made to conform 
with the 1996 Act and revised Circular A-133 (e.g., to reflect that, 
under the 1996 Act, all non-profit hospitals are now subject to the 
Act).
    OMB has determined, under 5 U.S.C. 553(b)(B), that good cause 
exists to issue these conforming amendments on an interim final basis. 
The conforming amendments update the references to the applicable 
statute and circulars, by replacing the superseded references with 
current ones. Moreover, under the Single Audit Act Amendments of 1996, 
the provisions of the 1996 Act (which are reflected in the revised OMB 
Circular A-133) provide standards that are effective for audits of 
fiscal years beginning after June 30, 1996. Accordingly, OMB has 
determined that issuing a proposal for comment on these conforming 
amendments would be ``impractical, unnecessary, and contrary to the 
public interest.''

Availability of Revised Circulars

    OMB has prepared updated versions of the five circulars, as amended 
herein. The revised OMB Circulars A-21, A-87, A-102, A-110, and A-122, 
as amended herein, are available electronically on the OMB Home Page at 
http://www.whitehouse.gov/WH/EOP/omb. These revised Circulars, as 
amended herein, are also available in paper format by contacting the 
OMB Publications Office at (202) 395-7332.
Joseph J. Minarik,
Acting Director.

    1. OMB hereby amends Circulars A-21, A-87, A-102, A-110, and A-122 
by adding the three paragraphs that follow, regarding ``Conditional 
exemptions,'' at the specified places in each Circular: (1) as a new 
paragraph d under A.3 Purpose and Scope, Application of Circular A-21; 
(2) as a new paragraph e under Attachment A, A.3 Purpose and Scope, 
Application of Circular A-87; (3) as a new paragraph j under Section 2, 
Post-award Policies of Circular A-102; (4) as a new Section ____.29 
under Subpart C, Post-award Requirements of Circular A-110; and, (5) as 
a new paragraph 7 under Attachment A, A. Basic Considerations of 
Circular A-122:
    Conditional exemptions. (1) 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.
    (2) 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

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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 the agencies' grants management common rule.
    (3) 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.
    2. OMB hereby amends paragraphs (a), (b) and (c) of Section ____.26 
of OMB Circular A-110 to read as follows:


____.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.

[FR Doc. 97-22828 Filed 8-28-97; 8:45 am]
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