July 25, 2024

OMB Updates the Uniform Guidance

The Office of Management and Budget (OMB) has recently revised the Uniform Guidance, a set of rules governing how federal financial assistance is managed. These updates, effective October 1, 2024, aim to clarify existing guidelines, reduce administrative burdens, and enhance the efficiency and security of managing federal funds. There are several changes that those with a reporting obligation should consider reviewing as the updates will soon become effective. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Background

Annually, the federal government allocates over $1.2 trillion in funding for thousands of programs through grants and various forms of financial assistance. These funds support various initiatives, from health care and after-school programs to critical infrastructure improvements and research and development. The Uniform Guidance, found in Title 2 of the Code of Federal Regulations (2 CFR), sets the standards for federal awards, including grants and cooperative agreements, ensuring that these federal funds are used effectively and in compliance with laws and policies.

Originally implemented ten years ago, the Uniform Guidance has substantially revised. OMB revised the guidance in response to evolving needs and extensive stakeholder feedback. Over 50 federal agencies, along with states, local governments, Tribal organizations, nonprofits, colleges, universities, and private companies, were involved in the review process. OMB also considered more than 3,200 public comments to ensure updates are both clear and practical.

Summary of Updates

The Office of Management and Budget (OMB) has introduced several significant changes to the Uniform Guidance, aiming to simplify the process and make federal grant programs more accessible. OMB officials describe these revisions as a “completely overhauled version” benefiting states, localities, academic researchers, and other stakeholders. Here is a summary of the key updates:

• Terminology Changes: To improve clarity, the term “non-Federal entity” has been replaced with more specific terms such as “recipient” or “subrecipient.” This change does not alter the scope of the guidance but helps stakeholders understand their roles more clearly.
• Audit Threshold Increase: The threshold for single audits has been raised from $750,000 to $1,000,000. This increase means that fewer organizations will need to undergo these audits, thereby reducing the administrative burden on smaller entities.
• Equipment and Supplies: The threshold for documentation of equipment and supplies has been increased from $5,000 to $10,000. This change simplifies asset management for lower-value items, making it easier for organizations to comply with documentation requirements.
• Internal Controls and Cybersecurity: Organizations are now required to have documented internal controls with an added emphasis on safeguarding sensitive information, including personally identifiable information (PII). This update aims to enhance the security of federal funds and data.
• Whistleblower Protections: The new guidance expands requirements to ensure that employees are informed about federal whistleblower protections. This change promotes transparency and accountability within organizations managing federal funds.
• Cost Principles: Changes to allowable costs, including an increase in de minimis rates from 10% to 15%, provide more flexibility in managing federal funds. These adjustments help organizations better allocate resources to meet program goals.
• Pass-Through Entities: New requirements have been introduced for pass-through entities to verify subrecipient eligibility and assess fraud risk. These measures are designed to enhance oversight and improve risk management practices, ensuring that federal funds are used appropriately.

Impact on Organizations

The recent updates to the Uniform Guidance bring several benefits and considerations for organizations. Proponents claim that simplified compliance through higher audit thresholds and clearer definitions, such as “recipient” and “subrecipient,” reduces complexity and administrative burdens, particularly benefiting smaller entities.

They also argue that improved security and transparency are achieved with new requirements for documented internal controls and enhanced cybersecurity measures, ensuring the protection of sensitive information and promoting responsible management of federal funds. Additionally, changes in cost principles and increased thresholds for equipment and supplies are believed to offer organizations more flexibility in managing and reporting federal funds, while expanded whistleblower protections foster a culture of accountability.

However, these benefits come with potential challenges. Critics suggest that organizations may face initial difficulties in adapting to the new requirements, necessitating updates to internal policies and staff training. The increased audit threshold, while reducing administrative burdens, could lead to oversight gaps for smaller entities currently exempt. Enhanced cybersecurity and internal control measures, though crucial, require additional resources, which might pose a challenge for smaller organizations. Balancing the newfound flexibility in cost principles with the need for vigilant oversight is essential to prevent misuse and ensure effective management of federal funds.

Next Steps

Organizations participating in federal grant programs will want to assess and update internal policies and procedures to align with the new guidance. This may include revising documentation related to internal controls, cybersecurity measures, and cost management to reflect the updated guidelines. If you have questions about the information outlined above or need assistance with another issue, Wilson Lewis can help. For additional information, call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.