The U.S. Office of Management and Budget (OMB) recently released its final guidance based on previously proposed revisions of the Uniform Guidance (UG). The changes — to be adopted by federal agencies by October 1, 2024 — are intended to reduce the burden on recipients and subrecipients of federal grants and other financial assistance.
According to the National Council of Nonprofits, the revisions remedy longstanding challenges in the government grants process. That process has been accused of limiting nonprofits’ effectiveness, discouraging qualified organizations from applying for federal assistance and wasting precious resources on complex reporting.
Higher thresholds
The new UG raises several critical thresholds, including the threshold for determining if an organization is subject to a single audit of its financial statements and programmatic compliance. The audit requirement will apply only to those organizations that spend at least $1 million in federal financial assistance in the fiscal year (up from $750,000).
It also alters the Type A/B threshold for audits of entities with total federal expenditures of $34 million or less (previously $25 million). For such organizations, the threshold to determine if a program is Type A for purposes of the single audit major program determination increases to $1 million from $750,000. The threshold for Type B programs requiring risk assessment goes up to $250,000. The UG includes additional changes to thresholds for organizations with total annual federal expenditures exceeding $34 million.
The thresholds for equipment and unused supplies doubles from $5,000 to $10,000. That means equipment purchased for less than $10,000 can be expensed rather than capitalized and kept, sold or otherwise disposed of with no further responsibility to the federal agency. In addition, if unused supplies exceed $10,000 in total aggregate value on termination or completion of a project or program — and aren’t needed for another federal award — the organization must retain them for other activities or sell them. In either case, the organization must compensate the federal government for its share.
De minimis indirect cost rate
The de minimis (minor or trivial) indirect cost rate is the percentage of the modified total direct cost (MTDC) that can be used by nongovernmental entities who don’t have a negotiated indirect cost agreement. It jumps from 10% to 15%. Organizations can apply for lower rates, but they can’t be required to apply for lower rates (unless mandated by statute). The revised UG also makes clear that pass-through entities must accept federally negotiated indirect cost rates for subrecipients. Thus, nonprofits that have negotiated rates with one federal agency must receive the same rate of payment from all other federal, state and local agencies. This change should be helpful for new or inexperienced nonprofits that lack the capacity to undergo a formal rate negotiation.
In addition, the UG changes the exclusion for subaward costs in the MDTC computation. It climbs from $25,000 to $50,000. The OMB also indicated that it might permit recipients and subrecipients to use direct labor, instead of the MDTC, as the base for the de minimis rate in the future.
Internal controls
Under the new UG, recipients and subrecipients must include cybersecurity and other “reasonable” measures to safeguard protected personally identifiable information. This language acknowledges that recipients and subrecipients should have some discretion to determine appropriate controls based on the types of information they hold and the sensitivity of the information.
However, the OMB doesn’t provide a framework for complying with this requirement. Instead, it states that individual agencies can provide more specific guidance. This could, however, lead to a patchwork of inconsistent requirements across federal agencies, which would add to the nonprofits’ compliance burden.
Next steps
Nonprofit leaders — particularly chief financial officers, controllers and those involved in grant management — need to ensure their organizations take the necessary steps to comply with, and take advantage of, the changes. Because federal agencies have some flexibility in how they adopt the revisions, it’s more important than ever to closely review each award for its particular requirements.
__________________________________________
Sidebar: Moving Toward Greater Equity
The revised Uniform Guidance includes several provisions to improve equity in federal financial assistance. The U.S. Office of Management and Budget recognized that “unnecessary complexity” often results in the recipients most in need of such assistance being unable to access it. This includes organizations most well suited to serve the populations many federal programs are designed to serve.
Among other things, the new guidance:
· No longer requires the exclusive use of English in notices, applications and reporting,
· Generally requires recipients and subrecipients to take affirmative steps to use small businesses and those owned by minorities, women and veterans,
· Requires federal agencies to improve the official descriptions of their programs in the Federal Program Inventory (the searchable website with information on spending associated with different assistance programs), and
· Simplifies notices of funding opportunities — notices must now provide basic information at the top of a grant announcement and use plain language, rather than jargon, to describe program requirements.
