On April 4, 2024, the Office of Management and Budget (OMB)
released updates to the OMB Guidance for Grants and Agreements (the
Uniform Guidance). The revised Uniform Guidance — now called
the "OMB Guidance for Federal Financial Assistance"
— clarifies and streamlines the requirements for agencies in
making grants and providing other forms of federal financial
assistance, such as cooperative agreements and loans, to nonprofit
organizations and state, local, and Tribal governments. The updated
Uniform Guidance will become effective on October 1, 2024, but
federal agencies may elect to apply the new rules on June 21,
2024.
Widely anticipated in the federal grant community since the
publication of the proposed changes to the Uniform Guidance in
October 2023, the revised Uniform Guidance makes significant
changes to various aspects of federal grant administration as
summarized below:
- Increasing the guaranteed de minimis rate for indirect costs from 10% to 15% of modified total direct costs (§ 200.414)
- Clarifying recipient entitlement to unexpended fixed amount award funds at the end of the program (§ 200.201) and increasing limits on fixed amount subawards (§ 200.333)
- Increasing the single audit requirement threshold from $750,000 to $1 million (§ 200.501)
- Elevating the mandatory disclosure standard from requiring disclosure for "violations" of federal criminal law to requiring disclosure for "credible evidence of the commission of a violation" (§ 200.113)
- Adding cybersecurity and other information security measures for internal controls (§ 200.303)
Increase in the Guaranteed De Minimis Indirect Cost Rate
For organizations that do not have in place a negotiated
indirect cost rate agreement to recover indirect costs, perhaps the
most impactful change relates to the default de minimis indirect
cost rate that those organizations may use. OMB has raised the de
minimis indirect cost rate from 10% to 15% of the modified total
direct costs, which includes all direct salaries and wages,
applicable fringe benefits, materials and supplies, services,
travel, and up to the first $50,000 (formerly, the first $25,000)
of each subaward (regardless of the period of performance of the
subaward).
The revised Uniform Guidance clarifies that the federal government
and pass-through entities may not compel recipients and
subrecipients to use an indirect cost rate lower than the 15% de
minimis rate or elected de minimis rate, unless required by a
federal statute or regulation. The updated rule does allow the use
of a lower rate if the recipient or subrecipient chooses to do so.
Lastly, in another important change, the Uniform Guidance no longer
requires recipients' indirect cost rates to be made public on a
government-wide website. However, this requirement could be revived
when the federal government updates the applicable web system, as
OMB commented in the October 2023 proposed changes to the Uniform
Guidance.
Fixed Amount Awards and Subawards
In the revised Uniform Guidance, OMB clarified that recipients of fixed amount awards (in contrast to cost reimbursement awards) are entitled to unexpended funds at the end of a project so long as the required activities under the award agreement were completed and certified to the federal agency or pass-through entity. The current version requires the return of fixed amount awards if the required activities were not carried out, but no entitlement to leftover funds is defined. In addition, the amount of fixed amount subawards that a recipient may issue with prior written approval from the federal agency was raised from $250,000 to $500,000.
Increase in the Single Audit Requirement Threshold
Recipients and subrecipients of federal grant awards that spend over a certain threshold amount of the grant money must annually undergo a single audit for their programs under the Single Audit Act. 31 U.S.C. § 7502. The Director of OMB is authorized to adjust the threshold amount triggering the single audit requirement every two years. Accordingly, through this update in the Uniform Guidance, OMB is raising the threshold amount from $750,000 to $1 million. OMB stated that it consulted the Consumer Price Index from 2014 to determine the rate of increase, and also commented that this increase is the smallest percentage increase to date.
Change in the Mandatory Disclosure Standard
The updated Uniform Guidance requires recipients, subrecipients, and applicants under a federal award to promptly disclose "credible evidence of a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code or a violation of the civil False Claims Act (31 U.S.C. 3729-3733)" in connection with the federal award. The current version requires disclosure of actual violation of federal criminal law, while the updated version more closely mirrors the existing Federal Acquisition Regulation (FAR) requirement for government contractors. OMB suggested that the "credible evidence" standard will be simpler to apply because it does not require a firm legal determination as to whether a criminal law was violated. However, OMB declined to provide a definition of "credible evidence," instead citing to the Black's Law Dictionary definition: "evidence that is worthy of belief; trustworthy evidence." OMB also cited to FAR Council guidance to explain that "credible evidence" is a higher standard than reasonable grounds and the recipient, subrecipient, or applicant should "take some time for preliminary examination of the evidence to determine [the] credibility before deciding to disclose to the Government." In short, those receiving federal financial assistance should be aware that potential violation of certain federal laws, including the civil False Claims Act, must be disclosed promptly if a preliminary investigation provides credible evidence of the violation.
New Cybersecurity and Information Security Requirement
The Uniform Guidance now addresses the emerging cybersecurity and information security threats by requiring recipients and subrecipients to take "reasonable cybersecurity and other measures to safeguard information." Recipients and subrecipients must implement such security measures as a part of their internal controls; protected information includes personally identifiable information, as well as other information that the federal agency or pass-through entity designates as sensitive. The new cybersecurity requirement is in line with other updates to the Uniform Guidance, such as the mandate that the federal agencies assess recipients for cybersecurity risks when making award decisions.
Conclusion
The updated Uniform Guidance brings welcome benefits to the
recipients and subrecipients of federal financial assistance in the
form of increased indirect cost rates and a higher audit threshold.
However, grantees and awardees should be aware that new compliance
requirements, such as cybersecurity measures and a heightened
mandatory disclosure standard, are present in the new Uniform
Guidance.
With these changes in the Uniform Guidance, it is possible that
states may also consider amending their grant laws and regulations
modeled on the Uniform Guidance, such as the Illinois Grant
Accountability and Transparency Act, to remain consistent with the
updated Uniform Guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.