Circular A

What Is Circular A?

Circular A refers to a set of official policy directives issued by the United States Office of Management and Budget (OMB). These circulars provide financial management standards, cost principles, and administrative requirements for federal agencies, state governments, educational institutions, and nonprofit organizations that receive federal funding.

Each Circular A document covers a specific area of financial oversight, such as budget preparation, grant management, auditing requirements, and cost allocation. The goal is to ensure the proper use of federal funds, prevent fraud, and promote transparency in financial transactions.

Why Is Circular A Important?

Circular A guidelines help create standardized financial policies across government agencies and organizations. They ensure that public funds are spent responsibly, programs meet compliance requirements, and federal grants are managed according to strict regulations.

For organizations receiving federal funding, non-compliance can lead to penalties, financial audits, or even a loss of funding. Understanding and adhering to these circulars is essential for avoiding financial risks and ensuring continued access to government support.

Different Circular A Policies and Their Impact

Over time, multiple Circular A policies have been issued, each covering different financial and administrative regulations. Some remain active, while others have been replaced by the Uniform Guidance (2 CFR Part 200) to streamline grant management.

Circular A-11: Federal Budget Preparation and Execution

Circular A-11 serves as the primary guide for federal agencies preparing budgets. It provides instructions on budget formulation, financial reporting, and performance management. Agencies use this document to plan funding allocations, forecast expenditures, and submit their annual budget requests.

This circular also outlines strategies for capital investment planning, risk management, and performance evaluation, ensuring that government spending aligns with national priorities.

Circular A-21: Cost Principles for Educational Institutions

Circular A-21 was developed to guide universities and colleges in managing federally funded research and programs. It defined the differences between direct and indirect costs, established rules for cost-sharing agreements, and outlined effort reporting requirements for faculty receiving federal research grants.

In 2014, Circular A-21 was replaced by the Uniform Guidance, which simplified cost principles for educational institutions and aligned them with broader federal grant regulations.

Circular A-87: Cost Principles for State, Local, and Tribal Governments

State, local, and tribal governments receiving federal funding followed Circular A-87 for cost allocation and expense tracking. This document ensured that federally funded programs complied with strict financial regulations, preventing misallocation of resources.

The circular also established methods for calculating indirect costs, requiring governments to maintain accurate financial records. Like A-21, it was later consolidated into the Uniform Guidance to create a more unified regulatory framework.

Circular A-102: Grant Administration Requirements

Circular A-102 provided administrative policies for managing federal grants and cooperative agreements. It outlined procurement procedures, recordkeeping requirements, and financial reporting standards for recipients.

It applied primarily to state and local governments, ensuring they maintained transparency and accountability in their grant management practices. The Uniform Guidance later incorporated these rules, streamlining federal grant regulations across different organizations.

Circular A-122: Cost Principles for Nonprofit Organizations

Nonprofit organizations receiving federal grants had to follow Circular A-122 to determine allowable and unallowable expenses. It provided guidelines for managing personnel costs, equipment purchases, and facility expenses, ensuring that organizations used federal funds responsibly.

This circular also restricted the use of federal funds for lobbying, fundraising, and other non-program-related expenses. In 2014, Circular A-122 was merged into the Uniform Guidance, aligning nonprofit cost principles with broader federal grant regulations.

Circular A-123: Risk Management and Internal Control

Circular A-123 remains one of the most important circulars still in effect. It focuses on risk management, financial integrity, and internal controls for federal agencies. This document requires agencies to implement enterprise risk management (ERM) strategies to protect public funds from fraud, waste, and inefficiencies.

It also establishes policies for financial reporting accuracy, cybersecurity in financial transactions, and compliance with federal audit standards. Federal agencies must regularly review and update their internal control systems to align with A-123 requirements.

Circular A-133: Auditing Requirements for Federal Fund Recipients

Circular A-133 set audit requirements for organizations receiving federal grants, ensuring transparency and accountability in financial reporting. It mandated annual single audits for entities receiving more than $750,000 in federal funding, requiring independent auditors to review financial statements and grant expenditures.

The circular also outlined procedures for addressing audit findings and implementing corrective actions. Like other cost principles, A-133 was later incorporated into the Uniform Guidance (2 CFR Part 200, Subpart F), standardizing audit requirements across different sectors.

The Uniform Guidance and Its Impact on Circular A Policies

In 2014, the Office of Management and Budget (OMB) introduced the Uniform Guidance (2 CFR Part 200) to simplify and consolidate multiple OMB circulars. This new framework replaced Circulars A-21, A-87, A-102, A-122, and A-133, creating a single set of rules for federal grant recipients.

The Uniform Guidance improved efficiency by:

• Establishing consistent financial management principles for all entities receiving federal funds.
• Reducing administrative burdens by harmonizing cost principles, grant policies, and audit requirements.
• Enhancing oversight and accountability to prevent fraud and financial mismanagement.
• Despite these changes, some Circular A policies, like A-11 and A-123, remain in effect, continuing to shape federal financial management practices.

How Organizations Can Ensure Compliance With Circular A Guidelines?

To stay compliant with Circular A policies and the Uniform Guidance, organizations should implement strong financial controls and regularly review regulatory updates.

Maintaining accurate financial records, conducting regular audits, and training staff on federal funding requirements are essential steps. Organizations receiving federal grants must also establish internal compliance programs to monitor expenditures and ensure alignment with OMB regulations.

For agencies and nonprofits managing large federal grants, working with financial experts or compliance consultants can help navigate complex Circular A guidelines and avoid penalties.