Sneak Preview: DOC IG Seeks Policy on Management Fees, Profit

February 26, 2016 | By Jerry Ashworth | Post a Comment

xgran_bookshot(The following was excerpted from a recent article in the Federal Grants Management Handbook.) The Inspector General (IG) for the Department of Commerce (DOC) is urging high-ranking DOC officials to establish controls that will enable the department to determine when grant recipient use of management fees or profit is appropriate.

In a recent letter to the DOC Chief Financial Officer and Assistant Secretary for Administration, DOC Inspector General Richard Bachman expressed concerns when federal agencies allow recipients in their award terms and conditions to receive a profit or collect management fees. Subpart E, Cost Principles, of the Office of Management and Budget’s uniform grant guidance (§200.400(g)) states: “The nonfederal entity many not earn or keep any profit resulting from federal financial assistance, unless expressly authorized by the terms and conditions of the federal award.”

Profit or management fees are more typically allowable in contract awards, which do not have indirect costs, rather than assistance awards. Assistance awards can include indirect costs which serve a similar function to management fees, or even profit, which support the contractor’s general cost of operations.

“The uniform guidance becomes especially relevant as cognizant federal agencies of the numerous recipients of DOC funding develop policies and procedures to control the awarding of profit or management fees,” Bachman said. “The department, as a steward of public funds, must decide now how profit or management fees will be controlled.”

Bachman referred to an April 2015 alert from the OMB Controller to federal offices of Chief Financial Officer requesting that federal awarding agencies “carefully consider whether there is an appropriate justification” in the award terms and conditions of a federal assistance award to allow recipients to earn management fees or profit. It added that federal agency policy and guidance should also include examples of inappropriate use of management fees or profit, such as for the purchase of alcoholic beverages, entertainment and meals for nonbusiness purposes, among other costs, which are unallowable under Subpart E.

The OMB Controller alert also explains that federal awarding agencies may permit management fees or profit in grants and cooperative agreements “only in circumstances when the viability of the project may be at risk because the recipient organization has limited or no financial resources to cover certain ordinary and necessary business expenses that may not be reimbursable under the governing cost principles.” For example, costs for operations of large facilities may benefit from management fees or profit, the OMB Controller alert states.

(The full version of this story has now been made available to all for a limited time on Thompson’s Grants Compliance Expert site.)

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