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October 25, 2020
Implementing the Federal Uniform Grant Reform Guidance
By Michelle Spriggs

Michelle Spriggs
Michelle Spriggs
With federal grant reform taking effect this past December, if you receive federal grants, now is the time to evaluate how you manage them and, if necessary, revise internal policies.

The changes to administrative and cost principles in the Uniform Grant Guidance affect any new Federal grant issued after December 26, 2014, and impact some additional funds to existing grants after that date as well. Audit changes take effect for fiscal years after that point, so implementation depends on your entity’s year end. For some, that may mean the December 31, 2015 audit is the first one subject to the new requirements, while June 30 year-end entities are not subject to the changes until June 30, 2016.

Although the uniform guidance retains many existing concepts and language, certain elements of the requirements are new to nonprofits subject to the changes. Items such as the new procurement standards, the subrecipient determination process and the focus on internal controls may require policy revisions or at a minimum a review of the new rules to ensure current policies are in line.

Getting Started
Culturally and linguistically, the Uniform Grant Guidance will take some getting used to. Performance, or how well your organization uses the grants as they were intended, is heavily emphasized. Instead of referencing the appropriate circular, your organization will reference the appropriate 2 CFR 200 section number.

As you comb through the guidance, keep in mind the distinction between “should” and “must.” “Should” phrases indicate best practices. “Must” indicates requirement. Hierarchy is important too: The federal awarding agency’s regulations for a grant’s management take precedence over the uniform guidance’s requirements in some instances. When in doubt, consult with the federal awarding agency about which requirement to follow.

You can access the uniform grant guidance through the Chief Financial Officers Council and the U.S. Government Publishing Office.

Internal Control
The Uniform Grant Guidance asks organizations to demonstrate more control over their use and management of grants than under previous guidance. Information that was previously discussed in cost circular audit requirements has been moved into administrative requirements.

Thematically, this brings the internal control concept for grant management more in line with the guidance put forth by the Government Accountability Office and the Committee of Sponsoring Organizations (COSO). It encourages a proactive approach to managing fraud and misuse of resources. Organizations have the flexibility to determine their best system of internal controls. This is a time for organizations to review their current systems of internal control to ensure they not only are strong and in line with best practices in the industry but also are well-documented and communicated at all levels of the organization.

Language from the new procurement standards comes from Circular A-102, the standard that state and local governments followed. Nonprofits will have to re-examine their procurement policies and procedures to ensure they meet the new requirements.

Of particular interest are the acceptable methods of purchasing, which have thresholds that differ from what your organization may have used in the past. During an informational session the Council on Financial Assistance Reform (COFAR) sponsored in October 2014, COFAR representatives said the rules surrounding the acceptable methods of purchasing are designed to ensure organizations consider multiple price points for specific goods or services. They’re also meant to increase accountability in procurement. More information about the acceptable methods of purchasing is available in 2 CFR —200.340.

COFAR acknowledged organizations might have to make extensive changes to their policies to meet the new standards. In its frequently asked questions, COFAR said organizations have a grace period for the first fiscal year affected by the new requirements. Entities with June 30 year-ends have until June 30, 2016, to comply with the new procurement policies.

Subrecipient Determination
The distinction between subrecipient and contractor created challenges for grant recipients in the past. The Uniform Grant Guidance in 2 CFR 200.330 outlines a process an organization can follow to assist with the proper classification of a relationship. Organizations must conduct the determination on a case-by-case basis.

If an arrangement qualifies another entity as a subrecipient, the pass-through entity must conduct a pre-award risk assessment. The assessment should consider the subrecipient’s prior federal award and audits, as well as the subrecipient’s staffing systems. Results from the pre-award assessment must be included in the subaward agreement. The subaward agreement also must include the total amount of the federal award from which it receives its funding along with the federal award’s Catalog of Federal Domestic Assistance (CFDA) number and title.

Internal control over subrecipients and contractors is critical. Organizations must verify the work being performed adheres to the agreement and that the performance is up to par. This may require an audit, in the case of a contractor or a single audit, in the case of a subrecipient.

Allocable Costs
Another complicated topic under the old cost circulars involved the correct classification of allocable costs. Expenses that can be identified with a cost objective such as a specific initiative or program are considered allocable costs. If costs cannot be identified with a cost objective and have been incurred for a common objective, they are indirect costs.

The guidance spells out numerous specific examples of allocable costs. It also details when indirect costs such as salaries for administrative and clerical staff can be considered allocable.

Though much of the language about allocable costs remains the same, a key concept has been added to the determination process. Select scenarios now require written approval from the Federal awarding agency before your organization can designate them allocable costs. A full listing of the types of costs that trigger the written prior approval requirement can be found in 2 CFR 200.407.

Indirect Costs
Currently, many organizations use negotiated indirect cost rates to recover a portion of the federal grant to help cover the cost of administration and management of that grant. Organizations used cognizant or oversight agencies to determine the appropriate indirect cost rate.

During the uniform guidance review process, concerns were raised that this method created a barrier to entry. Some argued smaller organizations might not have the resources to negotiate rates.

The uniform guidance addressed the matter by establishing a minimum 10% indirect cost rate alternative. Organizations that never had a negotiated indirect cost rate can use the minimum rate in lieu of a negotiated rate. Also, previously negotiated indirect cost rates can be used for up to four years. The uniform guidance requires federal agencies to accept negotiated indirect cost rates unless the awarding agency’s statutes prevent it from doing so.

Michelle Spriggs is a shareholder in the Not-For-Profit & Education Practice at CBIZ Tofias. Email her at or call 774-206-8336.
April 2015
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