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Are your procurement procedures up to snuff?

Nov 08, 2018

By Raymond M. Mahoney, CPA
Accounting & Auditing Supervisor

New federal procurement standards significantly alter the way nonprofits that receive federal funds handle purchasing. And while most organizations have already changed their written policies to comply with the new standards, you may find it easier to follow the rules on paper than in practice.    

Summing up the standards

The standards, included in the new Uniform Guidance, impose strict requirements on not-for-profits receiving federal funds. The guidance, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” which took effect for fiscal years starting in 2017, can be found online here.The procurement portion of the standards is effective for years starting after December 26, 2017.

Small purchases

According to the standards, the amount of the purchase determines the procurement methods an organization must employ. “Micro-purchases” of supplies or services up to $3,500 generally can be awarded without soliciting competitive quotes. “Small purchases” of services, supplies or other property that don’t cost more than $150,000 require price or rate quotes from several qualified sources.

Purchases over $150,000

For purchases exceeding $150,000, you must select vendors or suppliers based on publicly solicited sealed bids or competitive proposals. (Sealed bids are preferred for construction contracts.) You must select the lowest bid or the proposal most advantageous to the relevant program based on price and other factors that impact the program performance. You also must perform a cost or price analysis for every purchase over $150,000, to make independent estimates before receiving bids or proposals.

Noncompetitive proposals solicited from a single source are permissible in only limited circumstances — for example, when a public emergency won’t allow the delay associated with competitive solicitation.

Documenting your procurement procedures

The new standards require procurement procedures documented in writing. Conflict of interest policies must be included covering employees involved in procurement as well as all entities owned by or considered “related” to the organization. You also must keep records detailing each procurement, including bids solicited, selection criteria, quotes from vendors and the final contract price. Designing a checklist that outlines the decisions needed at each price level will make the process more manageable, as will keeping the required documentation.

Clearing hurdles to compliance

By now, most nonprofits are already into their 2019 fiscal years and should already be in compliance with the new standards, although some have found it to be a struggle. Significant barriers to full compliance include:

  • Culture shock. Not-for-profit organizations, like for-profit companies, often have selected their suppliers and contractors based on historical performance and personal relationships. But the new standards don’t consider those to be good reasons. As a result, not-for-profits must adopt an entirely new mindset — no small task for any organization! It calls for multiple rounds of staff training and visible buy-in from the highest levels of management.
  • Staff resistance. It can take longer for the frontline staff to adapt to a new approach than management. Even if they’re willing to change, they may need some time to break old habits. Consider including compliance with the new procedures as part of their performance evaluations.
  • Documentation overload. The new standards come with a boatload of documentation requirements that few organizations previously met. New policies and even checklists won’t ensure compliance with these demands.

Better safe than sorry

While real, these barriers can — and must — be overcome. Failure to comply with the procurement standards could result in your nonprofit’s loss of federal funding. You can reduce that risk, though, by auditing your new procedures and processes to confirm that they’re getting the job done.

If you need assistance meeting these procurement rules, please contact us.

 

 

 

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