So how do you make GRASS tools work in QGIS 2.14?
I got the same problem using the Osgeo installer, but I just managed to solve it.
First download this https://sourceforge.net/projects/mingw/?source=typ_redirect
Install it, look for msys-base package and install it.
Set the path to msys in QGIS to "C:\MinGW\msys" or what ever local drive it was installed on and the Grass algorithms should work fine.
So here's the deal: QGIS 2.14 standalone doesn't come with msys installation, but comes with grass 7 folders. QGIS 2.12 standalone comes with msys and grass 6.4 folders, yet no grass 7.
The solution is as simple as copying the folders from one registry to the other.
I worked with both 2.12 and 2.14 to verify that this works, and it does.
In order to have all the grass functionality working in 2.14, I copied the msys (and grass 6.4) from QGIS 2.12 apps folder to the C:\Program Files\QGIS Essen\apps folder, and set the correct path in the providers setting.
I'm on OSX 10.11.3 and I've got the same bug with my 2.12 version downloaded from Kynchaos. I just download this file, unpack it in the msys folder that I created in the path indicated in processing options box. It seems working fine. I've got 160 Algorithms, I don't remember if it is the expected number, can someone confirm me ?