UG Procurement Compliance – Perspectives from an Auditor

In the latest podcast episode of Rethinking Vendors, I sat down with Tom Sneeringer, Audit Partner at RSM, to discuss the expectations of auditors when it comes to their clients being compliant with the new UG Procurement Standards. RSM is a leading member firm of RSM International, a global network of independent audit, tax, and consulting firms, and Tom specializes with nonprofit clients who receive federal funding. Here are a few of the highlights from our conversation.

Ramp up Time is Over
After three years of punting procurement down the road, the OMB is punting no more. The UG procurement standards are now in effect, and the Federal government and those that audit federal awards are expecting compliance.

“These are some massive changes and I’m not sure organizations realize all of the refinements they need to make,” said Sneeringer. “I’ve been telling my clients to do their best in year one, and that it’s unlikely most organizations will have it all under control that first year.”

Auditors expect compliance but, if you’re not 100%, they want to see that you’ve been serious about making necessary changes. This includes properly updating policies and procedures – not simply adding boilerplate language but really working to implement the changes that you’ve made. They also want to see you’ve been updating all of the forms and templates you’ll be using to support your new policies and procedures, and that staff are properly trained and know how to use them.

Contractor vs. Subrecipient Determination is Going to be Critical
While requirements for making a contractor vs. subrecipient determination have been in play since the Uniform Guidance went into effect, they have taken on new importance with the procurement standards. This is because your determination dictates whether you follow the UG procurement standards (for contractors) or the UG subrecipient standards (for subrecipients).

While the UG does provide some guidance on making a determination, the guidance is not black and white. There is judgement involved in the process.

We agreed that the best approach to making this determination is to have a clear set of criteria that are consistently used across the organization, and to be sure to document the thought process behind the decision. “It’s rare that an auditor will challenge you on your decision,” said Sneeringer. “They mainly want to see that you have established criteria and a process that is being followed on a consistent basis.”

Sole Sourcing Must be Justified
Many organizations have fallen in love with sole sourcing. It allows you to use vendors that you trust, and removes the headache of competitive bidding. All of that has changed under the Uniform Guidance, which requires that one of four criteria must be met to justify a sole source.

“People naturally want the path of least resistance,” said Sneeringer. “Everyone’s busy and are already familiar and comfortable with contractors. However, with the newly raised bar, it should be a rare event in the eyes of the government that only one person can do it.”

Auditors are going to be looking hard at sole source, and want to see documentation of the justification that aligns with the four criteria defined in the guidance. If a sole source is not justified, it has a high likelihood of resulting in a finding.

Take Advantage of the Opportunity to Rethink Procurement
Procurement is an area within many organizations that hasn’t received much attention or love in the past. Uniform Guidance is now shining a light on procurement, and organizations can no longer ignore it.

While compliance is certainly driving the attention, there is a much bigger opportunity here to really step back and rethink the whole discipline of procurement in an effort to reduce organizational risk, reduce costs and, of course, ensure compliance.

Some forward looking organizations are viewing this as an opportunity to use best practice procurement as a differentiator by showing their funding agencies they take procurement seriously, and they can be trusted stewards for spending Federal funding. It’s a powerful message to any agency that wants a higher level of confidence with their partners.

Click here to listen to my full conversation with Tom Sneeringer on the UG procurement standards.
Tom Rogers
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Tom is the founder and CEO of Vendor Centric, he has been a trusted advisor to nonprofit organizations for 30 years, with a focus on helping them align the right people, processes and systems to mitigate third-party risk and drive more value from third-party contracts and relationships.

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