Nonprofit Sector

Ensuring the Benefits of the OMB Uniform Guidance

August 18, 2015

Contributed by Beth Bowsky, Policy Specialist - Government-Nonprofit Contracting, at the National Council of Nonprofits.

NFF’s website is likely seeing an uptick in hits since the release of the 2015 State of the Sector Survey—and half of them are probably mine, returning to pull out some additional valuable nugget of information. The data collected each year through this survey are vital for nonprofit advocacy, and that advocacy is essential for nonprofits to be able to achieve their missions.

One of those priceless pieces of information is that, more than half of the time, governments at all levels reimburse nonprofits 9 percent or less for their indirect costs. Even worse, roughly one-third of nonprofits receive 3 percent or less. Nonprofits are well aware of the fact that they frequently do not receive reimbursement for their full costs of providing services, but they often do not relate this to insufficient reimbursement for indirect costs—those expenses necessary for the efficient and effective operation of their organization. Although indirect costs may not be the only costs for which a nonprofit receives inadequate reimbursement, they generally are a substantial portion of the shortfall between actual costs and what governments pay.

The data from the NFF Survey document how prevalent the lack of reimbursement for indirect costs is. At the same time, that data create the opportunity for nonprofits and government to work together to address this systemic problem.

As a result of collective advocacy by the nonprofit sector that utilized survey findings like this, the Office of Management and Budget (OMB) directly addressed the problem of underfunding indirect costs when it implemented the Uniform Guidance, which went into effect on December 26, 2014. The new Guidance includes a mandate requiring that nonprofits receive reimbursement for some or all of these reasonable and necessary expenses, regardless of whether they receive federal funds directly or from a pass-through entity, such as a state or local government. For nonprofits with a federally approved indirect cost rate, the Uniform Guidance requires that everyone must pay that rate when federal funds are used. If a nonprofit does not have an approved rate, which is most nonprofits, there are two choices. Those that have never had an approved rate may be paid 10 percent of their modified total direct costs (that means organizational costs, not the costs of the program). The other option available to all nonprofits without a federally approved rate is to negotiate a rate using the federal cost principles. Because many state and local grants and contracts include federal funds, nonprofits who are subrecipients have the potential to benefit the most from the Uniform Guidance being applied accurately and consistently, but are often not even aware that they fall into this category. (More about the specifics of what the Uniform Guidance is, how it applies, and its applicable exceptions to these new rules are available on the National Council of Nonprofits website.)

But, as expected with any systems change as large as the application of the Uniform Guidance, during this current early phase of implementation numerous problems are being exposed. Already, nonprofits are experiencing misunderstandings, misinterpretations, and misapplications of the indirect cost requirement as they deal with governments at all levels. It is vital to not simply accept those conditions, but to advocate to correct them. This is especially true since several of the requirements in the new Uniform Guidance are not new at all, including some elements of the indirect cost reimbursement requirement--they have just rarely, if ever, been followed. Therefore, the new regulations will also likely be ignored or misapplied unless nonprofits speak up to ensure that the Uniform Guidance is implemented as intended.

That’s a scary proposition for many nonprofits.

It need not be. In addition to many allies, you have two very important resources. Your state association of nonprofits can speak on behalf of nonprofits in your state, if you tell them what is happening. They can serve as a protective cover for individual nonprofits by providing a collective voice as long as they know the problems you are encountering. Advocacy need not always be adversarial, either. In some cases, government and nonprofits are working collaboratively to implement the changes in a way that works for both.

The other very important resource you have is the data the Nonprofit Finance Fund Survey has collected, for your state as well as for the country. Just as this data was a vital tool in making the case for these needed reforms, it is equally essential to ensuring their full implementation. With the data to prove the extent of the issue, information on the Uniform Guidance to demonstrate the requirements that must be followed, and the collective power of nonprofits coming together, you can make a difference and secure more of the resources your nonprofit needs to serve its community.

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