[Federal Register Volume 69, Number 164 (Wednesday, August 25, 2004)]
[Proposed Rules]
[Pages 52334-52363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18748]



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Part II





Department of Veterans Affairs





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38 CFR Parts 41 and 49



Audits of States, Local Governments, and Non-Profit Organizations; 
Grants and Agreements With Institutions of Higher Education, Hospitals, 
and Other Non-Profit Organizations; Proposed Rule

  Federal Register / Vol. 69, No. 164 / Wednesday, August 25, 2004 / 
Proposed Rules  

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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: Proposed rule.

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SUMMARY: This document proposes to amend 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 proposes to codify 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: Comment date: Comments must be received on or before October 25, 
2004.

ADDRESSES: Written comments may be submitted by: Mail or hand-delivery 
to Director, Regulations Management (00REG1), Department of Veterans 
Affairs, 810 Vermont Ave., NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026; e-mail to [email protected]; or, through 
www.Regulations.gov. Comments should indicate that they are submitted 
in response to ``RIN 2900-AJ62.'' All comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 273-9515 for 
an appointment.

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) 273-5053. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: This document proposes 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.'' 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. The 
revised OMB Circular A-133 was published at 68 FR 38401 (June 23, 
2003). OMB Circular A-133 implements the Single Audit Act Amendments of 
1996, which were signed into law on July 5, 1996 (Public Law 104-156).
    Further, this document proposes to add a new Part 49 to Chapter 1 
of VA's regulations to codify the provisions of 2 CFR Part 215 
(formerly OMB Circular A-110), ``Uniform Administrative Requirements 
for Grants and Agreements with Institutions of Higher Education, 
Hospitals, and other Non-Profit Organizations.'' That rule provides for 
uniform administrative requirements for Federal agencies with 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.

Paperwork Reduction Act

    OMB approved the information collection associated with OMB 
Circular A-133 (Sec. Sec.  41.235, 41.320, and 41.505 of this proposed 
rule) under control number 0348-0057. OMB approved the information 
collection associated with 2 CFR Part 215 (formerly OMB Circular A-110) 
and contained in SF-269, SF-269A, SF-270, SF-272, and SF-272A (Sec.  
49.52 of this proposed 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.

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 an expenditure by State, local, 
or tribal governments, in the aggregate, or by the private sector of 
$100 million or more in any given year. This proposed amendment would 
have no such effect on State, local, or tribal governments, or the 
private sector.

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed rule will 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. 601-612. The actions and costs imposed on entities by the 
adoption of the proposed rule would be only a small portion of the 
actions and costs of such entities. Therefore, pursuant to 5 U.S.C. 
605(b), this proposed rule is exempt from the initial and final 
regulatory flexibility analyses requirements of sections 603 and 604.

Catalog of Federal Domestic Assistance Program Number

    The Catalog of Federal Domestic Assistance program numbers for this 
document are 64.005, 64.024, 64.203.

List of Subjects in 38 CFR Parts 41 and 49

    Accounting, Grant programs, Indians, Intergovernmental relations, 
Loan programs.

    Approved: April 14, 2004.
Anthony J. Principi,
Secretary of Veterans Affairs.
    Editorial Note: This document was received in the Office of the 
Federal Register on August 12, 2004.
    For the reasons set forth above, 38 CFR Chapter 1 is proposed to be 
amended as follows:
    1. Part 41 is revised to read as follows:

PART 41--AUDITS OF STATES, LOCAL GOVERNMENTS, AND NON-PROFIT 
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 Pass-Through Entities
41.400 Responsibilities

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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: 31 U.S.C. ch. 75; 38 U.S.C. 501; Pub. L. 98-502; 98 
Stat. 2327; Pub. L. 104-156; 110 Stat.1396 unless otherwise noted.

Subpart A--General


Sec.  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)

Sec.  41.105  Definitions.

    Audit finding means deficiencies which the auditor is required by 
Sec.  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 
Sec.  41.400(d)(1) and Sec.  41.400(d)(2), respectively. A cluster of 
programs shall be considered as one program for determining major 
programs, as described in Sec.  41.520, and, with the exception of R&D 
as described in Sec.  41.200(c), whether a program-specific audit may 
be elected.
    Cognizant agency for audit means the Federal agency designated to 
carry out the responsibilities described in Sec.  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 cost-
reimbursement contracts that non-Federal 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 Sec.  41.205(h) and Sec.  41.205(i).
    Federal program means:
    (1) All Federal awards to a non-Federal 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 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

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    (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 Sec.  41.520 or a program 
identified as a major program by a Federal agency or pass-through 
entity in accordance with Sec.  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 Sec.  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 non-Federal 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 Sec.  41.200(c) and Sec.  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 non-Federal 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 Sec.  
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 Sec.  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 
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 Sec.  41.210.

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

Subpart B--Audits


Sec.  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 Sec.  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 Sec.  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 program-

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specific audit conducted in accordance with Sec.  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. 
Non-Federal 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 Sec.  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)

Sec.  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 non-Federal entity to comply with laws, regulations, and 
the provisions of contracts or grant agreements, such as: expenditure/
expense transactions associated with grants, cost-reimbursement 
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 prior-years, 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 cost-reimbursement 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)

Sec.  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;
    (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

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compliance by for-profit subrecipients. The contract with the for-
profit subrecipient should describe applicable compliance requirements 
and the for-profit 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)

Sec.  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 Sec.  
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)

Sec.  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)

Sec.  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)

Sec.  41.230  Audit costs.

    (a) Allowable costs. Unless prohibited by law, the cost of audits 
made in accordance with the provisions of this part are 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 Sec.  50.200(d) of this chapter from having an audit conducted 
under this part. However, this does not prohibit a pass-through entity 
from charging Federal awards for the cost of limited scope audits to 
monitor its subrecipients in accordance with Sec.  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 pass-through 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)

Sec.  41.235  Program-specific audits.

    (a) Program-specific audit guide available. In many cases, a 
program-specific 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

[[Page 52339]]

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 Sec.  41.315(b), and a corrective action plan 
consistent with the requirements of Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  41.505(d)(1) and 
findings and questioned costs consistent with the requirements of Sec.  
41.505(d)(3).
    (c) Report submission for program-specific 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 Sec.  41.320(b), as 
applicable to a program-specific 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 pass-
through 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 Sec.  41.320(b), as applicable to a program-specific 
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 Sec.  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 Sec.  41.100 through Sec.  41.215(b), Sec.  41.220 
through Sec.  41.230, Sec.  41.300 through Sec.  41.305, Sec.  41.315, 
Sec.  41.320(f) through Sec.  41.320(j), Sec.  41.400 through Sec.  
41.405, Sec.  41.510 through Sec.  41.515, and other referenced 
provisions of this part unless contrary to the provisions of this 
section, a program-specific audit guide, or program laws and 
regulations.

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

Subpart C--Auditees


Sec.  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 Sec.  
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 Sec.  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.

[[Page 52340]]

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

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

Sec.  41.305  Auditor selection.

    (a) Auditor procurement. In procuring audit services, auditees 
shall follow the procurement standards prescribed by part 43 of this 
chapter, 2 CFR Part 215 (formerly Circular A-110), ``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, 2 CFR Part 215 
(formerly OMB Circular A-110), 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. To minimize any 
disruption in existing contracts for audit services, this paragraph 
applies to audits of fiscal years beginning after June 30, 1998.
    (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)

Sec.  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 Sec.  
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 pass-through 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 
pass-through 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, pass-through 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)

Sec.  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 Sec.  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 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 pass-through entity is not currently 
following up with the auditee on the audit finding; and

[[Page 52341]]

    (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)

Sec.  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. 
(However, for fiscal years beginning on or before June 30, 1998, the 
audit shall be completed and the data collection form and reporting 
package 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 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 section 41.320(d)(2) of OMB 
Circular A-133.
    (vii) A yes or no statement as to whether the auditee qualified as 
a low-risk auditee under section 41.530 of OMB Circular A-133.
    (viii) The dollar threshold used to distinguish between Type A and 
Type B programs as defined in section 41.520(b) of OMB Circular A-133.
    (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 Sec.  41.400(a) and Sec.  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 Sec.  41.310(a) and Sec.  41.310(b), respectively;
    (2) Summary schedule of prior audit findings discussed in Sec.  
41.315(b);
    (3) Auditor's report(s) discussed in Sec.  41.505; and
    (4) Corrective action plan discussed in Sec.  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

[[Page 52342]]

subrecipients shall submit to each pass-through 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) Instead of submitting the reporting package to a pass-through 
entity, 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 Sec.  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


Sec.  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 Sec.  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 non-Federal 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 pass-through 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 cost-effective audit.
    (9) For biennial audits permitted under Sec.  41.220, consider 
auditee requests to qualify as a low-risk auditee under Sec.  
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 
Sec.  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.

[[Page 52343]]

    (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 pass-through 
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)

Sec.  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 Sec.  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 Sec.  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 case-by-case basis by agreement 
among the Federal agencies concerned.
    (c) Pass-through entity. As provided in Sec.  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 Sec.  41.510(c).

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

Subpart E--Auditors


Sec.  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 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 Sec.  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

[[Page 52344]]

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 Sec.  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 Sec.  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)

Sec.  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 Sec.  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 Sec.  41.520(b); and
    (ix) A statement as to whether the auditee qualified as a low-risk 
auditee under Sec.  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 Sec.  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 pass-through 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)

Sec.  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 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

[[Page 52345]]

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 follow-up, 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 Sec.  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 pass-through 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)

Sec.  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)

Sec.  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.
    (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 Sec.  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

[[Page 52346]]

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 Sec.  41.510(a). 
However, the auditor may use judgment and consider that audit findings 
from questioned costs under Sec.  41.510(a)(3) and Sec.  41.510(a)(4), 
fraud under Sec.  41.510(a)(6), and audit follow-up for the summary 
schedule of prior audit findings under Sec.  41.510(a)(7) do not 
preclude the Type A program from being low-risk. The auditor shall 
consider: The criteria in Sec.  41.525(c), Sec.  41.525(d)(1), Sec.  
41.525(d)(2), and Sec.  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 Sec.  
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 Sec.  41.525(b)(1), 
Sec.  41.525(b)(2), and Sec.  41.525(c)(1), a single criteria in Sec.  
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 Sec.  41.530 for a low-
risk 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)

Sec.  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 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.

[[Page 52347]]

    (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)

Sec.  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 Sec.  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 Sec.  41.320(i).

Appendix B to Part 41--OMB Circular A-133 Compliance Supplement

    Note: OMB Circular A-133 Compliance Supplement is available from 
the OMB Office of Administration, Publications Office, Room 2200, 
New Executive Office Building, Washington, DC 20503.

    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.
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.

[[Page 52348]]

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: 31 U.S.C. ch. 75; 38 U.S.C. 501; Pub. L. 98-502; 98 
Stat. 2327; Pub. L. 104-156; 110 Stat. 1396, unless otherwise noted.

Subpart A--General


Sec.  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 Sec. Sec.  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)

Sec.  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 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

[[Page 52349]]

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 Sec.  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 non-profit 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) 
(currently $25,000).
    (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 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)


[[Page 52350]]




Sec.  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 Sec.  49.4.

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

Sec.  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)

Sec.  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


Sec.  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)

Sec.  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)

Sec.  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)

Sec.  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)

Sec.  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)

Sec.  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 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)

Sec.  49.16  Resource Conservation and Recovery Act (RCRA).

    Under the RCRA (Public Law 94-580, 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

[[Page 52351]]

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)

Sec.  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


Sec.  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)

Sec.  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 Sec.  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)

Sec.  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 Sec.  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.
    (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

[[Page 52352]]

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 women-owned 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)

Sec.  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.
    (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

[[Page 52353]]

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)

Sec.  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 Sec.  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 
Sec. Sec.  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 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)

Sec.  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 non-Federal 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

[[Page 52354]]

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 pre-award 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 one-time 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 Sec.  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 writing of the date when the recipient may expect the decision.

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

Sec.  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

[[Page 52355]]

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)

Sec.  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)

Sec.  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)

Sec.  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 to 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


Sec.  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 Sec. Sec.  49.31 through 49.37.

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

Sec.  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)

Sec.  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 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

[[Page 52356]]

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)

Sec.  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)

Sec.  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.
    (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

[[Page 52357]]

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)

Sec.  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 federally-sponsored 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)

Sec.  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 government-wide 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) Unless waived by the Federal awarding agency, 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) 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 Sec.  49.34(g).

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

Sec.  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


Sec.  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)


[[Page 52358]]




Sec.  49.41  Recipient responsibilities.

    The standards contained in Sec. Sec.  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)

Sec.  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)

Sec.  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)

Sec.  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 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-
percentage-of-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.

[[Page 52359]]

    (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)

Sec.  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)

Sec.  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)

Sec.  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)

Sec.  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 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


Sec.  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)

Sec.  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 Sec.  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

[[Page 52360]]

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)

Sec.  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 semi-annual 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.
    (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. 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 Sec.  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)

Sec.  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

[[Page 52361]]

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 Sec.  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


Sec.  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)

Sec.  49.61  Termination.

    (a) Awards may be terminated in whole or in part only if all of the 
following conditions 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 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 Sec.  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)

Sec.  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 Sec.  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

[[Page 52362]]

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 Sec.  49.13).

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

Subpart D--After-the-Award Requirements


Sec.  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)

Sec.  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 Sec. Sec.  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)

Sec.  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 Sec.  49.26.
    (4) Property management requirements in Sec. Sec.  49.31 through 
49.37.
    (5) Records retention as required in Sec.  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 Sec.  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)

Sec.  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.
    (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 59--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 1\1/2\ 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

[[Page 52363]]

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. 04-18748 Filed 8-24-04; 8:45 am]
BILLING CODE 8320-01-P