By Jason Clapp CPA, Jacobson Jarvis & Co. PLLC, Audit Principal
During 2024, the United States Office of Management and Budget (“OMB”) issued an update to regulations governing Federal awards of financial assistance. What was previously referred to as the OMB Guidance for Grants and Agreements, is now referred to as the OMB Guidance for Federal Financial Assistance, and represents the most significant changes to these regulations, including changes to the Uniform Guidance, since it was initially released in 2013. In addition to numerous changes to terms and definitions, there are changes that are broadly applicable to nearly all organizations that are governed by the Uniform Guidance’s regulations and several narrow changes that might affect only certain organizations that receive Federal funding. Most of the changes are effective for federal financial assistance issued on or after October 1, 2024.
The focus of the changes outlined in this Communique will be in relation to those specifically incorporated in 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, which is referred to simply as the Uniform Guidance. The primary objectives of the OMB in making the recent changes were to:
- Better incorporate certain statutory requirements and administrative priorities.
- Reducing unnecessary burdens to agencies, recipients, and subrecipients.
- Achieve more consistent interpretation of certain areas of the guidance where there has historically been some diversity in understanding.
- Efforts to use more plain language, improving flow, and addressing inconsistent use of terms.
The most significant changes that would affect many auditees subject to a Uniform Guidance audit and their auditor are as follows:
- Increasing the Single Audit threshold from $750,000 to $1,000,000, as well as increasing the Type A program threshold from $750,000 to $1,000,000. These changes are effective for fiscal year-ends beginning October 1, 2024 (applicable for fiscal year-end September 30, 2025, and beyond).
- Capitalization threshold for equipment purchases using Federal funds increasing from $5,000 to $10,000.
- Increasing the threshold for remitting unused supplies used in Federal programs back to the granting agency from $5,000 to $10,000.
- Change to the Modified Total Direct Cost (“MTDC”) calculation to allow for up to $50,000 of “costs” of subaward disbursement for each subaward, up from the previous $25,000.
- Increase in the de minimus indirect cost rate to up to 15% of MTDC from the previous 10% (assuming indirect costs in total exceed the amount calculated using the 15%).
- Updating the procurement method definition of “small purchase” to be referred to as a “simplified acquisition;” additionally that “micro-purchases” and “simplified acquisitions” are informal procurement methods.
- Increasing the threshold for fixed-amount subawards from $250,000 to $500,000, and expanding the guidance by adding a provision that unexpended funds can be retained by the recipient if the program objectives have been met and milestones have been achieved.
- Changes to the section discussing Notice of Funding Opportunity (“NOFO”) in an effort to relieve administrative burden for recipients.
- Added requirements for all subrecipients to provide an explicit certification to the pass-through entity when applying for funds, requesting payment, and submitting reports.
- Updating the mandatory disclosure requirements to report instances of fraud, bribery, or gratuity violations when “credible evidence” has been obtained rather than waiting until a legal determination has been made.
- Removal of several cost categories that previously required prior written approval. Additional changes were made to the guidance regarding fringe benefit costs.
- Requirements for recipients/subrecipients to take reasonable cybersecurity and other safeguards to protect electronic information with a focus on protected personally identifiable information (PII).
- Additional information to provide situational examples of questioned costs. Also, when the amount of known questioned costs cannot be determined, an explanation as to why the amount cannot be determined.
- Changes to guidance that allows the cognizant agency for the audit or the oversight agency to authorize an extension for the audit clearinghouse submission deadline when undue burden might preclude the auditee from being able to submit its report by the original nine-month deadline.
- Update to allow the Schedule of Expenditures of Federal Awards to be prepared in accordance with U.S. GAAP or another comprehensive basis of accounting (OCBOA) as appropriate under the circumstances.
The list presented above is not intended to be an exhaustive list of the changes. Exclusion of certain parts of the update does not diminish the importance of the changes not are not provided above. There will certainly be some changes that are not listed above that will be considered particularly important to an individual recipient of Federal financial assistance or other stakeholders. As always, recipients are encouraged to review the content of 2 CFR Part 200 Subparts that are most relevant to their federal award programs.
What should recipients do now? Recipients need to understand the breadth of changes and the impact on existing policies and procedures as it relates to new Federal award grant agreements or other financial assistance issued to your organization on October 1, 2024, or after. In many sections of the Uniform Guidance, recipients are required to have written or documented policies and procedures that address a specific requirement. As such, recipients should critically review their policies and procedures to ensure that they meet the requirements. Additionally, understanding the effective dates of the audit requirements versus the requirements that affect the financial award compliance itself will be important to maintain compliance. As usual, it will benefit recipients to collaborate with their auditor, or seek out professionals who can assist their organization to fully grasp the more salient provisions affecting their organization, and to ensure a smooth transition with these updated requirements.
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About the Author:
Jason Clapp CPA, Jacobson Jarvis & Co. PLLC, has more than 20 years of experience providing attestation services including audits, reviews, and compilations in various industries including serving not-for-profit organizations. Jason enjoys partnering with members of management and the board of directors of not-for-profit organizations to help them achieve their goals and objectives and to provide value-added perspectives in the areas of accounting, internal control, financial reporting, compliance with grant agreements, and Federal financial assistance.