On April 22, 2024, the Office of Management and Budget (OMB) released significant revisions to Title 2 of the Code of Federal Regulations (CFR), including 2 CFR Part 200 (the Uniform Guidance). These updates represent the most substantial changes to the Uniform Guidance (UG) in recent years. They are aimed at streamlining oversight, enhancing consistency, and reducing administrative burdens for federal agencies, applicants, and recipients. While these revisions promise greater clarity and efficiency, they also introduce new compliance expectations and change procedures in ways that will impact how federal awards are managed and audited.
For recipients of federal funding, these changes bring both opportunities and challenges—they will require adjustments to internal policies, controls, and reporting mechanisms to remain compliant. Auditors, on the other hand, must stay ahead of the changing requirements, ensuring that their teams and clients understand the latest expectations and properly implement necessary updates. The single audit landscape is already complex, with a constantly shifting regulatory framework requiring recipients and auditors alike to keep up.
For both award recipients managing federal funds and auditors assessing compliance, understanding the key revisions, their impact, and the most effective implementation strategies is crucial. This article breaks down the changes, analyzes their implications, and provides practical guidance to help one navigate the transition.
Understanding Key Changes and Their Impact
The revised guidance, which is now called OMB Guidance for Federal Financial Assistance, is effective for awards issued on or after October 1, 2024, except for the revisions to Subpart F, Audit Requirements, whose effective date is for fiscal years beginning on or after October 1, 2024.
Organizations that receive federal funding must now navigate a dual compliance environment—managing existing awards under the previous guidance while ensuring that new awards comply with the revised standards. This transitional phase presents unique challenges, particularly in areas such as cost principles, procurement standards, and internal controls.
Changes to Subpart A, Acronyms and Definitions
The 2024 revisions to Subpart A of the Uniform Guidance bring important changes that will impact both recipients of federal funds and their auditors. While the updates aim to improve consistency, reduce administrative burden, and clarify regulatory expectations, they also introduce new compliance responsibilities that organizations must proactively address.
One of the most significant updates is the increase in the equipment and supplies threshold from $5,000 to $10,000. This change reduces the administrative burden associated with tracking lower-value federally funded assets. It does not dictate an organization’s internal capitalization policy, however, which is based on materiality and may remain higher or lower than $10,000, depending on the organization’s financial practices. Equipment is now defined as tangible personal property (including IT systems) with a useful life of more than one year and a unit cost of $10,000 or the organization’s established capitalization level, whichever is lower. Organizations cannot automatically adopt the $10,000 threshold—they must revise internal policies accordingly. For example, if an organization’s capitalization threshold is currently $5,000, it must continue using that lower limit for accounting purposes and must also track federally funded equipment at or above that amount in accordance with federal requirements. Conversely, if an entity’s internal threshold is $20,000, it must still track federally funded equipment beginning at $10,000 for federal compliance, even if those items are not capitalized for accounting purposes. Recognizing the challenge of managing awards under both the prior and revised guidance, OMB granted an exception, allowing federal agencies to permit recipients to apply the new threshold to awards issued before October 1, 2024, if explicitly approved.
Beyond just updating capitalization thresholds, organizations must continue to comply with OMB’s property management requirements, including conducting physical inventory at least once every two years, maintaining detailed property records, and ensuring that equipment is safeguarded against loss or misuse. In addition, disposition regulations remain in effect, requiring organizations to follow federal guidelines when equipment is no longer needed. Importantly, adjusting an entity’s capitalization threshold for equipment also affects how it defines supplies, because the definition of supplies (2 CFR section 200.1) cross-references the definition of equipment.
Another key update with significant financial implications is the revision to Modified Total Direct Cost (MTDC), which now allows indirect charges on the first $50,000 of subawards, up from the previous cap of $25,000. This change applies when MTDC is used as the basis for calculating indirect costs, increasing the portion of subaward funds eligible for recovery and helping organizations better cover administrative and operational expenses. Organizations must ensure that their financial policies reflect this update, as indirect cost rates will now apply to a larger portion of subawards.
These changes may seem technical, but they directly impact how organizations manage federal funds, allocate costs, and track compliance. For grant recipients, failing to adjust internal policies could result in misalignment with federal regulations, potentially leading to audit findings or questioned costs. For auditors, these revisions introduce new areas of review, requiring them to ensure that recipients correctly implement policy updates, track equipment and supply purchases accurately, and apply indirect cost rates appropriately.
Understanding and implementing these updates is critical for ensuring compliance and optimizing financial management under federal awards. Organizations should take immediate steps to review their capitalization policies, update procurement and asset tracking procedures, and communicate changes with their audit teams to navigate the transition effectively.
Changes to Subpart B, General Provisions
The applicability section (section 200.101) has been reformatted for clarity and now explicitly states that cost principles do not apply to food commodities provided through grants and cooperative agreements. In addition, Fixed Amount Awards must adhere to allowable, necessary, and allocable cost principles, reinforcing cost accountability.
A key administrative change is the allowance for federal agencies, recipients, and subrecipients to use languages other than English in applications, reports, and official correspondence, which enhances accessibility for multilingual entities while maintaining compliance requirements. Another significant update aligns mandatory disclosure requirements with the Federal Acquisition Regulation (FAR), requiring recipients and subrecipients to promptly disclose credible evidence of violations of federal criminal law or the civil False Claims Act to the Office of Inspector General. This revision strengthens fraud prevention efforts and increases accountability for federal award recipients.
Changes to Subpart C, Pre-Federal Award Requirements
The 2024 revisions to Subpart C of the Uniform Guidance introduce important clarifications that will directly impact recipients of federal funding and auditors. Among the key updates are refinements to fixed amount awards, an often-misunderstood funding mechanism. These awards, unlike traditional grants, provide a set funding amount regardless of actual costs incurred, shifting the focus from reporting expenditures to measuring performance and results. While this simplifies financial reporting, it also raises questions about record retention, compliance expectations, and oversight responsibilities.
Although payments are based on a fixed amount, it is important to note that the award amount is determined using cost principles and a reasonable estimate of actual costs. While routine financial reporting is not required, this does not exempt recipients from compliance obligations. Costs must still be necessary and reasonable for the performance of the federal award, be adequately documented to support the fixed award determination, and be determined in accordance with Generally Accepted Accounting Principles (GAAP).
One of the biggest misconceptions about fixed amount awards is that recipients are entirely exempt from financial oversight—but this is not the case. While recipients are not required to report actual costs, recipients must still adhere to record retention requirements and make documentation available for audit review.
In addition, the revision clarifies that recipients are entitled to retain unexpended funds if all required activities have been completed per the award terms. To prevent misinterpretations regarding profit retention, the updated section 200.400(g) explicitly states that any remaining funds from a fixed amount award are not considered profit, aligning with cost principles under Subpart E.
Beyond fixed amount awards, the revisions to pre-award requirements introduce enhanced planning, communication, and recipient protections. Agencies are now encouraged to consult with affected communities when designing programs to ensure that funding aligns with real-world needs. Notices of Funding Opportunities (NOFO) must include executive summaries and be written in clear, plain language, improving accessibility for potential applicants. Federal agencies are also required to provide specific award timelines and eligibility details, making the funding process more transparent. A significant addition is section 200.217 on whistleblower protections, which safeguards employees of federal funding recipients from retaliation if they report misconduct. These changes collectively enhance accountability, promote fairness, and strengthen protections for organizations managing federal funds, thereby requiring recipients to update internal policies and auditors to refine compliance assessments accordingly.
These updates are intended to simplify compliance and reduce an organization’s administrative burden. Nevertheless, recipients must update internal policies, adjust compliance strategies, and ensure that documentation practices align with these new expectations. Understanding these revisions will help recipients and auditors navigate the changes effectively and avoid potential compliance pitfalls.
Changes to Subpart D, Post-Federal Award Requirements
One of the most significant changes to Subpart D is the requirement for recipients and subrecipients to not only establish and maintain internal controls but also to document them in alignment with the Standards for Internal Control in the Federal Government, issued by the U.S. Government Accountability Office (GAO) or Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. While many entities already follow these standards, smaller organizations may face challenges in formally documenting their internal control processes, which could expose them to audit findings. In addition, new cybersecurity provisions require recipients to safeguard personally identifiable information (PII) and other sensitive data, prompting organizations to review and strengthen their IT security policies and employee training programs to mitigate risks.
Procurement procedures have also been updated to offer more flexibility. The previous term “small purchases” has been replaced with “simplified acquisitions” to better align with federal procurement terminology. The updated guidance clarifies that recipients can use their judgment in determining the appropriate number of quotations for simplified acquisitions unless otherwise specified by the awarding agency. In addition, geographic preferences and job creation commitments are now optional evaluation criteria in contract awards, providing recipients with greater flexibility to align procurements with local economic and workforce priorities.
For pass-through entities (PTE), the revisions reinforce their responsibility for determining whether an entity receiving federal funds is a subrecipient or a contractor on a case-by-case basis. The updates emphasize that federal agencies do not have a direct legal relationship with subrecipients, further solidifying the PTE’s role in oversight. PTEs must now verify that subrecipients are not suspended, debarred, or otherwise excluded from receiving federal funds. This requirement places an additional compliance burden on PTEs but helps mitigate the risk of awarding federal funds to ineligible entities.
Changes to Subpart E, Cost Principles
One of the most notable changes is the removal of prior approval requirements for several cost categories, including changes in principal investigator or project scope (section 200.201), real property (section 200.311), equipment (section 200.313), direct costs (section 200.413), entertainment (section 200.438), memberships (section 200.454), participant support costs (section 200.456), selling and marketing costs (section 200.467), and taxes (section 200.470). By eliminating these prior approval requirements, the revised guidance streamlines administrative processes for recipients while maintaining compliance expectations.
One of the most impactful updates in the 2024 Uniform Guidance revisions is the increase of the de minimis indirect cost rate from 10% to “up to 15%” of Modified Total Direct Costs (MTDC). This change offers significant benefits, particularly for small and mid-sized organizations that lack the resources to negotiate a federally approved indirect cost rate. By increasing the percentage, the revision expands cost recovery opportunities for these entities, helping them better manage administrative and operational expenses. Federal agencies have been given flexibility in how they implement this change, meaning that adoption may vary by agency and award type. For example, the Environmental Protection Agency (EPA) has indicated that recipients may be allowed to amend their existing awards to apply the new 15% de minimis rate, provided that there are sufficient funds available to support 15% de minimis rate. But agencies are not permitted to apply the increase retroactively to costs incurred before an amendment’s effective date.
For recipients and subrecipients considering a shift to the new rate, it is crucial to do the following:
▪ Review agency-specific guidance on how the transition will be handled for existing and future awards.
▪ Engage with funding agencies to determine whether modifications to existing awards will be allowed.
▪ Update financial policies and budgeting strategies to reflect the increased cost recovery potential.
▪ Communicate with PTEs to ensure compliance with the new indirect cost policies.
While the changes present new opportunities for cost recovery, they also require proactive planning to ensure compliance and maximize benefits. Organizations should work closely with funding agencies and auditors to ensure a smooth transition while taking full advantage of the expanded indirect cost provisions.
Changes to Subpart F, Audit Requirements
The 2024 revisions to Subpart F of the Uniform Guidance introduce important updates to single audit thresholds, major program determinations, audit findings, and report submission requirements. One of the most significant changes is the increase in the single audit or program-specific audit threshold from $750,000 to $1,000,000. This means that entities expending less than $1,000,000 in federal funds in a fiscal year will no longer be subject to single audit requirements, thus reducing the administrative burden on smaller recipients. Note that this change is not effective until audits of fiscal years beginning on or after October 1, 2024, allowing entities time to adjust.
Another key change is in major program determination (section 200.518), where the Type A threshold has increased from $750,000 to $1,000,000. In addition, the first and second tiers of total federal awards expended have been raised from $25 million to $34 million.
Revisions to audit findings (section 200.516) clarify how questioned costs should be reported. Auditors must now specify how questioned costs were computed and provide justification if an exact dollar amount cannot be determined. This additional level of detail enhances transparency and accountability in audit reports while ensuring that unresolved costs are clearly documented.
For report submission (section 200.512), the revised guidance introduces a process for requesting extensions when the standard nine-month deadline poses an undue burden on the auditee. The cognizant agency for audit or, in its absence, the oversight agency for audit, may grant an extension if the delay is unavoidable and impacts project performance beyond just the audit process. Extensions will not be granted, however, solely to allow an auditee to maintain its low-risk designation under 2 CFR 200.520.
OMB outlined specific factors that federal agencies should evaluate before granting an extension, as detailed in OMB Memorandum M-24-11. Agencies should consider whether the existing timeframe places an undue burden on the auditee and whether the delay could have been avoided through proper planning and reasonable diligence. In addition, agencies must assess whether the audit delay impacts broader project delivery and performance activities beyond just the audit process itself. If an extension is granted, the cognizant agency for audit will determine the appropriate length based on the specific circumstances and the time necessary to alleviate the undue burden. This revision provides greater flexibility for recipients facing legitimate challenges, while still ensuring that audit reporting remains timely and effective in promoting financial transparency and accountability.
Transitional Challenges and Effective Date Considerations
The implementation of the 2024 Uniform Guidance revisions presents several transitional challenges for both recipients and auditors. Federal agencies are required to apply these revisions to all new awards issued on or after October 1, 2024, and are strongly encouraged to apply them to amendments of existing awards that provide additional funding. But the changes do not automatically apply to awards made before this date unless the awarding agency explicitly states otherwise. This staggered implementation requires recipients and auditors to manage a mix of awards under both the prior and revised UG, creating complexities in compliance and reporting.
A key challenge lies in determining which version of the guidance applies to a given award. Federal agencies are expected to clearly communicate whether the 2024 revisions apply, either in the award terms or through amendments. If a federal agency amends an existing award to apply the new guidance, all subawards under that award must also adopt the revised standards. If the primary award remains under the previous guidance, however, then subawards issued after October 1, 2024, must also follow the older regulations, unless explicitly amended. This creates a scenario where recipients must track multiple sets of compliance requirements, increasing the administrative burden and the potential for misalignment between federal and subrecipient policies.
The overarching goal of the 2024 UG revisions is to reduce administrative burden and improve consistency in federal financial assistance management.
From an audit perspective, the revisions impact Single Audit requirements under Subpart F, which take effect for audits of fiscal years beginning on or after October 1, 2024. Auditors must be cautious when assessing compliance requirements in order to ensure that they apply the correct version of the UG based upon the award’s effective date. The 2024 Compliance Supplement provides guidance on implementing these revisions, but auditors will need to carefully evaluate whether a federal agency has formally adopted the new rules for a given award. Additional guidance is expected to be provided within the 2025 Compliance Supplement when it is released later this year.
To facilitate this transition, federal agencies have been encouraged to engage proactively with recipients and provide guidance on implementation. Agencies may use case-by-case exceptions to allow certain flexibility, such as permitting recipients to apply the new de minimis indirect cost rate to existing awards.
Despite these transition challenges, the overarching goal of the 2024 UG revisions is to reduce administrative burden and improve consistency in federal financial assistance management. As agencies and recipients navigate this change, clear communication and careful tracking of compliance requirements will be essential to ensuring a smooth transition.
Navigating the Transition
The 2024 Uniform Guidance revisions introduce significant updates that reshape federal award compliance, requiring both recipients and auditors to adapt. A key challenge during this transition period is the need for dual compliance, as organizations must track awards issued under both the prior and revised guidance. Recipients must carefully identify which set of compliance requirements applies to each award to ensure proper implementation, while auditors must assess whether entities are applying the correct rules based on the award’s effective date.
For recipients, these changes require updates to internal policies, procurement processes, and cost recovery strategies, alongside increased scrutiny over subrecipient monitoring and cybersecurity protections. Meanwhile, auditors must adjust their approach to major program determinations, questioned costs, and Single Audit thresholds, ensuring compliance assessments align with the revised guidance. The phased implementation of these updates means that organizations will need to stay flexible and responsive as agencies continue to refine their guidance.
Successfully navigating this transition will require proactive planning, clear documentation, and ongoing coordination between recipients, auditors, and funding agencies. By taking the necessary steps—reviewing award terms, updating internal procedures, and ensuring compliance with the appropriate set of regulations—recipients can minimize disruptions, optimize cost recovery, and strengthen financial management, ultimately positioning themselves for success.
