Time is running out! For organizations that receive federal funding subject to Uniform Guidance (UG), 2 CFR 200, the time to update procurement standards is rapidly approaching. The UG provided a two-year grace period, which expires two full fiscal years following Dec. 26, 2014. This means organizations with a Dec. 31 fiscal year-end must have the new standards in place by Jan. 1, 2017.
The UG procurement standards remove much of the ambiguity and relative freedom organizations had under the previous A-110 standards in favor of more stringent and prescriptive requirements. Specifically, the new standards require quotes and/or price analysis for procurements in excess of $3,500 and open competition for those in excess of $150,000 The new standards significantly limit the permissible justifications for sole source procurements. The standards also introduce new concepts of cost and price analysis to the government grants world, and require profit to be negotiated separately in certain circumstances.
While some organizations chose to proactively implement these changes ahead of the mandated timing, the new procurement standards represent a major shift in the way nonprofits approach procurement, and are tough to implement for even the most diligent of organizations. Many early adopters are still struggling with these changes, finding themselves unprepared to handle the stringent new compliance requirements, policy overhauls, training needed at all levels and—most importantly—the cultural shift the standards introduce. While organizations grapple with these significant changes, they are simultaneously finding themselves under increased audit scrutiny from external and governmental auditors.
So what have been the most significant lessons learned?
- The cultural shift resulting from new procurement standards should not be underestimated. Most organizations choose vendors and contractors based on past performance and existing relationships, and have done so for many years. These factors will no longer be a permissible basis of selection for direct federally funded procurements, so organizations need to be ready to make major changes in their procedures.
- The need for documentation has expanded significantly. Organizations must now keep all of the quotes received, rationale for selection, cost/price analysis and negotiation memorandum.
- Purchase orders and contract templates must be updated to include new required flow-down clauses.
- In advance of the deadline, organizations that haven’t already adopted new procurement policies should take steps to get compliant now and should consider these best practices in their efforts:
- Conduct a gap assessment by reviewing current policies and procedures and comparing them to the new requirements under Uniform Guidance.
- Based on the flags raised during the assessment, revise your procurement policy. Be sure to include written standards of conduct covering conflicts of interest in your procurement policy.
- Think about your culture: How do you buy goods and services? Who are the buyers within your organization? How will this new policy affect them? What practices can be used to be sure that your programs and mission are not negatively impacted?
- Understand when cost and/or price analysis is necessary, and how it can be documented. For example, how does your organization document sole source cost analysis during an emergency procurement?
- Ensure everyone involved in the procurement process understands the new requirements and policy. Provide multiple rounds of training at every level of your organization.
- Once your policy changes have been effective for a reasonable amount of time, use your internal audit function to ensure your new procedures and controls are operating effectively.
- Many nonprofit organizations have limited resources to identify compliance issues and craft policy updates and solutions. Seeking outside help often proves to be an efficient way to be honest about your compliance, identify any flaws and get compliant quickly.This article originally ran in New York Nonprofit Media.
- Compliance with these new standards is tough, but not impossible. Be thoughtful when drafting your new policy—a policy that is not grounded in your organization’s mission and culture will prove almost impossible to implement. It’s critical that organizations begin this process well in advance of the deadline, so they have time to strategically execute changes. Start now and ensure you have time to train staff and test the effectiveness of your new policies and controls.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2016). Copyright © 2016 BDO USA, LLP. All rights reserved. www.bdo.com
Warren Averett is an independent member of the BDO Alliance USA. This article was borrowed with permission from BDO USA, LLP.