OMB vs. The Auditors

imageIn the world of grants management, the Office of Management and Budget is an undoubted heavyweight, but the renowned “tag team” of federal auditors is no pushover.

Nonetheless, OMB has jumped into the long-running fight about whether computing devices are “equipment” for the purposes of federal regulations, or mere “supplies.” Under its proposed administrative reforms — embodied in the so-called “super-circular” — OMB is directly challenging the auditors by firmly placing computing devices in the category of supplies.

This may sound like an esoteric dispute, but auditors from the U.S. Department of Education’s Office of Inspector General have claimed that some school districts culpably mismanage their stock of laptops, PDAs and other computing devices. Alleged violations include failing to track the whereabouts of such devices and maintaining an up-to-date inventory of each and every one. Repayment of federal funds is one potential outcome of such  findings.

At issue is the federal definition of “equipment.” OMB circulars — which set generally applicable administrative rules for every federal agency — state that equipment is tangible personal property with a useful life of more than one year and a cost in excess of $5,000. There are a host of rules governing the use, management and disposition of equipment. In contrast, items costing less than $5,000 are considered “supplies” and subject to much lower management standards. (States and other grantees may set lower, but not higher, cost thresholds.)

Back when computers were moved with hand trucks, the $5,000 limit might have covered such devices. When laptops cost as little as a few hundred bucks, they arguably become supplies.

But schools don’t normally lose pallets of paper and crates of books at a time. In contrast, laptops tend to walk with distressing frequency, and they do cost more than pencils (for now, anyway).[i]  Hence, in 1986, monitors from ED’s Office of Chief Financial Officer started to issue findings if districts could not immediately place their hands on federally funded computing devices when the monitors demanded to see them. OIG soon thereafter took up the cause, making inventory controls a priority. Rather than cite the equipment rules, the auditors would claim that the inability to find these devices showed poor internal controls, which itself is a violation of federal regulations. In fact, ED monitors and auditors even developed special terms for this entire class of devices, such as “small and attractive items” or “easily pilferable items.”

This generated considerable pushback from state and local officials who objected to having the equipment rules imposed on them through a side door. After all, they asserted, the auditors are there to determine compliance with the regulations, not create new ones.

Now, as attorney Tiffany Winters explains in her recent column on the subject, OMB’s new super-circular would establish a new cost category called “Material and Supplies Costs, Including Costs of Computing Devices.” That title pretty much indicates OMB’s stand.

Although OMB should be given credit for grappling with the issue, it is unclear to me whether this really establishes practical standards for ensuring accountability for federally funded computing devices. No one worries too much if a stock of papers and books has dispersed to a variety of classrooms. What outcome do we want if the auditors come calling and district officials can’t readily produce their laptops?


[i] Of course, given the downward trend in the price of electronics, computing devices might soon cost as little as textbooks now. If laptops are available for $30 at the corner drugstore, this whole controversy becomes moot. Maybe I am underestimating OMB’s prescience; see Steve Peha’s recent column on this very issue


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