By: Navleen Sohi, Blake Duffy, Robert Kovacs, Benjamin Smith, Jillian Colebert, Aidan Moss, Christopher Shannon, Andrew Berry, and Ryan Boswell

In 2023, the United States Government awarded $1.1 trillion in grants and cooperative agreements (Federal awards), funding everything from research and development to higher education. These Federal awards are governed by 2 CFR 200 (Uniform Guidance).

In October 2023, several Uniform Guidance updates were proposed by the Office of Management and Budget (OMB) and released for public comment. OMB reviewed all comments received and issued the final revised guidance in April 2024, which will be effective for all Federal awards issued on or after October 1, 2024 (although early adoption by Federal agencies is permitted).

Overview of Uniform Guidance Updates

The intent of the revised guidance on the 2 CFR 200 Updates for 2024 are:

• Incorporate recent OMB policy priorities,
• Reduce agency and recipient burden,
• Clarify guidance that recipients or agencies have interpreted in different ways, and
• Improve management, transparency, and oversight by using plain language, improving flow, and addressing inconsistent use of terms.

The following discusses updates to pre-award and post-award requirements, as well as agency-specific items to watch for.

Changes to 2 CFR 200

Pre-Award Federal Requirements and Contents of Federal Awards

Aiming to enhance the transparency, accountability, and effectiveness of Federal financial assistance programs, the 2 CFR 200 Updates for 2024 introduces several key updates to pre-award requirements, with a focus on the improvement of the evaluation and selection process of Federal award recipients. Some noteworthy revisions to the pre-award process for recipients are as follows:

2 C.F.R. § 200.201 - Use of grants, cooperative agreements, fixed amount awards, and contracts:

• Clarified that routine monitoring of costs is not expected to be conducted by the pass-through entity.
  • Fixed-amount subawards are still subject to audit requirements listed within subpart F.
• Clarified that recipients are entitled to any unexpended funds under a fixed amount award if the required activities were completed in accordance with the terms and conditions of the award.
• Upon conclusion of a fixed amount award, any activities that were not completed must be identified to the funder. If the project’s original scope is not completed, funding is reduced to the appropriate amount.

2 C.F.R. § 200.205 - Federal agency review of merit of proposals:

• Heightened emphasis on verifying the applicant's financial and administrative capabilities to ensure applicants can manage Federal funds responsibly.
• Detailed compliance reviews of all relevant 2 CFR 200 regulations.
• Expanded reporting requirements for applicants to include more frequent and detailed performance and financial reports.

2 C.F.R. § 200.206 - Federal agency review of risk posed by applicants:

• Clarified that agency processes may consider any risk criteria, such as a cybersecurity risk, pertinent to a program.
• This risk assessment may be modified at any point of the award’s lifecycle.

2 C.F.R. § 200.217 – Whistleblower protections:

• Introduced to enhance whistleblower protections and requirements for recipients of Federal awards.
• Mandates that recipients and subrecipients inform their employees in writing about the Federal whistleblower protections provided by law.

2 C.F.R. § 200.303 – Internal Controls:

• A requirement was added in paragraph (e) that recipient and subrecipient internal controls include cybersecurity and other measures to safeguard information.
• The update did not identify a specific framework for cybersecurity and the Federal awarding agency will provide guidance.
• OMB agreed that a cybersecurity framework is a topic to be discussed for future updates.

2 C.F.R. § 200.204 – Notices of Funding Opportunities:

• NOFOs must be written in plain language to ensure they are understandable to a diverse audience, including underserved communities and inexperienced applicants.
• Agencies should streamline NOFOs by limiting length and complexity, including only necessary information.
• The new template requires an executive summary outlining program goals, objectives, target audience, and eligibility criteria. It also includes the required inclusion of a table of contents with headings at least similar to the headings contained in the template to provide consistency in the information provided across all NOFOs.
• Agencies may shorten NOFOs by linking to standardized terms, conditions, and disclosures, enhancing document efficiency.
• Agencies may provide technical assistance and clarifying information. If provided, it should be widely accessible to all potential applicants, such as being posted on platforms like Grants.gov.

Post-Award Federal Requirements

OMB has also made significant updates to the post-award guidance, aimed at increasing the efficiency and accountability of grant management for both Federal award recipients and the Federal Government. Highlighted below are a few of the headlining changes:

Notable Threshold Updates – As a part of the Uniform Guidance updates (2 CFR 200 Updates 2024), OMB has increased the following thresholds:

1.     The de minimis indirect cost rate is increased from 10% to 15% of modified total direct costs.

While this update allows the recipient and subrecipient to claim a 15% de minimis rate, the recipient or subrecipient has the discretion to use a lower rate if preferred. This change will bring significant value to recipients and subrecipients that do not have negotiated indirect rate structures in place, especially benefiting the smaller or less experienced recipients and subrecipients who have not established an indirect rate agreement.

OMB believes this update will result in a better and more realistic reimbursement of true indirect costs.  However, if a lower rate is required by statute for a specific award or program, that lower rate will be utilized for that award or program.

2.     The threshold to distinguish between equipment and supplies is increased from $5,000 to $10,000. As part of this increase, the disposition threshold for when equipment may be disposed of with no further responsibility to the Federal agency is also increased to $10,000. Also, the amount of proceeds permitted to be retained, from the Federal share, when equipment is disposed of is increased to $1,000. The same threshold when supplies are disposed of is also increased to $1,000.

3.     The subaward exclusion threshold included in the calculation of modified total direct costs is increased from $25,000 to $50,000 per subrecipient per Federal award.

4.     The Single Audit threshold is also increased. Single Audits will now be required for any non-Federal entity that expends $1,000,000 or more in Federal awards within the entity’s fiscal year.

5.     The Fixed Amount Subaward limitation was increased to $500,000. Prior approval of all fixed amount subawards is still required from the applicable Federal agency.

Part 175 – Trafficking in Persons – As part of this latest round of updates, OMB has updated Part 175 to align it with the amendments made to authorizing statutes. The focus remains to prevent human trafficking in Federally-funded programs and activities. There are five key requirements outlined in the clause:

1.     Prohibition of Trafficking Activities

Similar to state or local municipality law – human trafficking is illegal. Recipients and subrecipients are explicitly prohibited from engaging in all forms of human trafficking.

2.     Monitoring and Internal Controls

Organizations with Federal programs must establish and maintain policies & procedures to monitor compliance and conduct due diligence to ensure that employees, contractors, and sub-recipients do not engage in trafficking activities.

3.     Mandatory Disclosure

Recipients of Federal funds must report any suspicions or allegations of violations of these laws to the Federal agency and Inspector General of the Federal agency.

4.     Remedial Actions

As documented in its policies, organizations must have appropriate remedial actions in place if they discover a trafficking violation. This may include terminating relationships with employees, subrecipients, or contractors.

5.     Certifications

As part of the pre-award process, organizations may be required to certify that policies and procedures are in place to comply with anti-trafficking laws.

Agency-Specific Guidance for Federal Awards

Additionally, OMB’s updates will impact agency-specific guidance. While Federal agencies have not yet officially released the revisions to their guidance based upon OMB’s Uniform Guidance updates, these revisions were due to OMB by mid-May. So, while we do not know what the changes will be for agency-specific sections of the CFR, agencies will have assessed whether to make changes based upon OMB revisions.

Two OMB revisions that are likely to be impacted by agency-specific guidance are the de minimis rate increase and the audit threshold increase. OMB’s revision to increase the de minimis rate had an exception for limits from statutes, and some federal agencies have statutes that currently limit the indirect rate to something below 15%.

Also, some agencies include the audit threshold of $750,000 in their specific audit guidance for for-profit recipients and subrecipients rather than referencing the limit noted in 2 CFR 200 Subpart F that OMB has increased to $1,000,000. It will be important to review the Federal agency-specific updates to each respective section of the CFR upon release in order to determine all new compliance requirements.

Future Implications

Given that these OMB-issued updates will take effect for all Federal awards issued on or after October 1, 2024, it is essential to review and understand the impactful changes now from the 2 CFR 200 Updates for 2024, so that any necessary updates can be made before implementation.

The Federal Grants Compliance team at Capital Edge brings a wealth of experience and expertise in the field of Federal awards and is ready and willing to assist with any questions or issues concerning updates for the OMB Uniform Guidance revisions.

Capital Edge Consulting is a professional services company comprised of adept problem solvers who deliver tangible results to address today’s most complex U.S. government contracting challenges. Capital Edge helps clients address the challenging regulatory, contractual, and compliance requirements of U.S. federal contracts and we have experience working with a wide variety of industries that provide goods or services to the federal government including industries such as biotech and healthcare, nuclear energy, education, information technology, non-profit, professional services, defense, and software.