Key Takeaways
- 2 CFR Part 200 (Uniform Guidance) governs all federal grants — every agency, every award type; it overrides individual agency rules where they conflict
- Single Audit required when you expend $750,000+ in federal awards in one fiscal year — costs $15,000–$40,000 but is an allowable grant expense
- All costs must be allowable, allocable, reasonable, and consistently treated — the four cost principles that apply to every expenditure
- Organizations without a negotiated rate can use the 10% de minimis indirect cost rate on modified total direct costs indefinitely
- Grant records must be retained for 3 years from submission of the final financial report — longer if audit, litigation, or claims are pending
Summary
Federal grants come with significant compliance obligations under the Uniform Guidance (2 CFR Part 200), the OMB framework that governs all federal financial assistance. Non-compliance can result in disallowed costs, grant termination, and repayment obligations. Whether you are a nonprofit, university, state agency, or small business, these rules apply to your federal awards.
The Four Cost Principles
Every expenditure charged to a federal grant must meet four tests simultaneously:
| Principle | What It Means | Common Failure |
|---|---|---|
| Allowable | Permitted under 2 CFR 200 and the award terms | Charging alcohol, lobbying, or entertainment |
| Allocable | Directly benefits the grant program or project | Charging overhead that doesn't support the award |
| Reasonable | Cost a prudent person would pay under similar circumstances | Above-market vendor rates without justification |
| Consistently Treated | Same treatment across all funding sources (federal and non-federal) | Capitalizing equipment for grants but expensing for internal projects |
Financial Management Requirements
Grantees must maintain financial systems that meet these standards (2 CFR §200.302):
- Accurate records: Financial records must identify the source and application of federal funds for all federally funded activities
- Effective internal controls: Safeguards to prevent errors, fraud, and misuse of federal funds
- Compliance with award terms: Federal statutes, regulations, and the terms of the award must be followed at all times
- Budget tracking: Actual expenditures compared against budgeted amounts for each line item
- Timely reporting: Financial reports submitted on schedule as required by the award
Procurement Standards
Federal grantees must follow procurement standards under 2 CFR §§200.317–200.327. Key requirements vary by purchase size:
- Micro-purchases (up to $10,000): May be made without competitive quotes if price is considered reasonable
- Small purchases ($10,001–$250,000): Require price or rate quotations from an adequate number of sources
- Sealed bids / competitive proposals ($250,000+): Full competitive procurement required with documented evaluation criteria
- Conflict of interest: Grantee employees must not participate in procurement decisions where they have a personal interest. Written standards of conduct are required.
Indirect Costs and the De Minimis Rate
Indirect costs (overhead, administrative expenses not directly attributable to a single project) are recovered through an indirect cost rate. Options under 2 CFR §200.414:
- Negotiated Indirect Cost Rate Agreement (NICRA): Negotiated with your cognizant federal agency — gives you a rate specific to your cost structure, often higher than 10%
- 10% de minimis rate: Available to any non-federal entity that has never received a federally negotiated rate — applied to Modified Total Direct Costs (MTDC)
- Fixed rate with carry-forward: Some agencies offer fixed predetermined rates established in advance for a period
MTDC exclusions
The de minimis rate is applied to MTDC, which excludes capital expenditures, charges for patient care, rental costs, tuition, subcontractor/subgrantee amounts over $25,000, and participant support costs.
Subrecipient Monitoring
If your organization passes federal funds to another organization (a subrecipient), you become a pass-through entity and are responsible for monitoring subrecipient compliance under 2 CFR §200.332. Required actions:
- Evaluate each subrecipient's risk before award (prior audits, financial stability, experience)
- Include all required federal terms and conditions in subaward agreements
- Verify subrecipient has active SAM.gov registration (not debarred or suspended)
- Review financial and performance reports; conduct site visits if warranted
- Ensure subrecipients meet Single Audit requirements if they expend $750,000+ in federal funds
Single Audit Requirements
A Single Audit is required when a non-federal entity expends $750,000 or more in federal awards in a fiscal year — across all federal sources combined. Key facts:
- Must be conducted by an independent CPA firm following GAGAS (Generally Accepted Government Auditing Standards)
- Must be submitted to the Federal Audit Clearinghouse (FAC) within 9 months of fiscal year end
- Audit cost is an allowable grant expense — budget $15,000–$40,000 depending on organizational complexity
- Audit findings become public record on the FAC website — agencies review these before awarding new grants
- Organizations spending less than $750,000 may still be subject to financial statement audits required by state law or award terms
Performance Reporting and Closeout
Grantees must submit performance reports as specified in the award agreement — typically quarterly, semi-annually, or annually. These track progress toward grant objectives and outcomes. At grant closeout:
- Submit final financial report and final performance report within 90 days of the period of performance end date
- Return any unspent federal funds (unless prior approval was obtained for carryover)
- Submit final invention statement and property reports if applicable
- Retain all grant records for 3 years from submission of final financial report (longer if audit or litigation pending)
Compliance Setup Checklist
- Establish your indirect cost rate — negotiate a NICRA or confirm eligibility for the 10% de minimis rate before your first award
- Implement a written procurement policy that meets 2 CFR §200.317–327 thresholds and conflict-of-interest standards
- Set up a time-and-effort tracking system for all staff charged to federal grants (required by 2 CFR §200.430)
- Identify whether you will have subrecipients and implement a subrecipient monitoring plan before subawards are issued
- Determine if your projected federal expenditures will exceed $750,000 — if so, budget for the Single Audit
- Set calendar reminders for all reporting deadlines and the 90-day closeout window from the end of your period of performance