Federal Grant Compliance 2026: 2 CFR Part 200 Uniform Guidance

The Four Cost Principles

Every expenditure charged to a federal grant must meet four tests simultaneously:

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)

Frequently Asked Questions