What you need to know about recent changes to 2 CFR 200

On October 5, 2023, the Office of Management and Budget (OMB) issued a Notification of Proposed Guidance in the Federal Register, which explained that OMB was proposing revisions to parts 1, 25, 170, 175, 180, 182, 183, and 200 in 2 CFR, subtitle A.

The final rule includes changes to 2 CFR Part 200, which is the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.

Grantees receiving CDBG-DR and CDBG-MIT funds must follow these requirements as they apply to procurement, eligible costs, and Single Audits. The final rule will be effective for awards made on or after October 1, 2024. This article provides an overview of the most significant changes.

What is 2 CFR 200 and why did it change?

Between 2012 and 2013, OMB and other federal agencies developed the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), located in part 200 of 2 CFR.

This effort was intended to assist programs in delivering better outcomes on behalf of the American people while simultaneously reducing administrative burden and the risk of fraud, waste, and abuse. The Uniform Guidance in Part 200—which OMB established in 2013— consolidated, streamlined, and superseded requirements from several earlier OMB Circulars and guidance documents related to federal financial assistance management and implementation of the Single Audit Act. This new streamlined guidance became effective on December 26, 2014.

OMB periodically reviews the Uniform Guidance in accordance with 2 CFR 200.109. For example, OMB made further revisions to the Uniform Guidance in 2020. The 2020 revisions addressed topics including program development and design, as well as measuring recipient performance to assist federal awarding agencies and non-federal entities to improve program goals and objectives, share lessons learned, and adopt promising performance practices.

Subpart A – Acronyms and Definitions [200.1]

Note: Throughout Subparts A-E, the use of “non-federal entity” was replaced with “recipient” and/or “subrecipient.”

• Equipment:
• Capitalization threshold increased from $5,000 to $10,000.
• Modified Total Direct Costs:
• Increased definitional threshold for up to $50,000 (previously $25,000) of each subaward (regardless the period of performance of the subaward under the award).
• Questioned Costs:
• Updated the definition to clarify and provide examples of what a questioned cost is/is not, but no significant change from a policy perspective.
• Known and Likely Questioned Costs:
• Definitions were moved from 200.516 to 200.1.

Subpart B – Mandatory Disclosures [200.113]

• Modifications were made to the mandatory disclosure requirements. Previously, an entity was required to report violations of federal criminal law involving fraud, bribery, or gratuity violations.
• As revised, the requirement now reads that an applicant, recipient, or sub-recipient of a federal award must promptly disclose whenever it has credible evidence of a commission of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations under the false claims act.

Subpart C – Pre-Federal Award Requirements

• Use of Grants, Cooperative Agreements, Fixed Amount Subawards, and Contracts [200.201]:
• Expanded guidance clarifies certain requirements for fixed amount subawards. Examples include clarifying that unexpended funds may be retained if the program objectives and milestones have been achieved.
• Requires, upon conclusion of a fixed amount award, the identification of activities that were not completed.
• Other minor revisions were made that do not significantly impact applicability or implementation.

• Notices of Funding Opportunities
• This section includes several changes to align with OMB’s objective of reducing the administrative burden on recipients. For example, the Notice of Funding Opportunity (NOFO) must include an executive summary and a limit on the length of the published NOFO.

Subpart D – Post Federal Award Requirements

• Internal Controls [200.303]:
• The section was updated with plain language changes, including the replacement of non-federal entity with recipient and subrecipient, thereby confirming the potential applicability to for-profit and foreign recipients and subrecipients.
• Additionally, 200.303(e) added a requirement that a recipient/subrecipient take “reasonable cybersecurity and other measures to safeguard information including protected personally identifiable information (PII) and other types of information.”
• OMB did not provide a relevant framework for “cybersecurity and other measures” as was suggested in various comments on this revision. OMB indicated that they would consider the need to implement a government-wide specific framework in the future. In the interim, they will leave it to the federal agencies to consider providing more specific guidance on the topic, as appropriate.

• Equipment-Related Thresholds [200.313 Equipment]
• Increases the acquisition value threshold relevant to the equipment definition from $5,000 to $10,000 per unit.

• Reporting Unused Supplies [200.314 Supplies]
• An increase in the threshold for reporting unused supplies from an aggregate value of greater than $5,000 to $10,000.

• Procurement by States and Indian Tribes [200.317]
• In recognition of Tribal sovereignty, revision to permit Indian Tribes to be treated the same as States, thereby allow them to follow their own procurement policies and procedures as opposed to those in section 200.318-200.327. Noted exceptions include requirements to comply with 200.321, 200.322, 200.323 and 200.327, as applicable.

• Procurement Methods [200.320]
• Change in terminology to be consistent with standard terminology to change “small purchases” to “simplified acquisitions.”
• Clarification that “micro-purchases” and “simplified acquisitions” are types of “informal procurement methods for small purchases.” 2 CFR 200.320(a)(2)(i) includes slight revisions to include “the recipient or subrecipient may exercise judgment in determining what number is adequate when referring to the number of rate quotations to be obtained to meet competition.”

• Subrecipient and Contractor Determinations [200.331]
• Clarification was added to note that no single factor or combination of factors contained in this section is necessarily determinative. Emphasis was on the need for the pass-through entity to exercise judgement in classifying each agreement as a subaward or a procurement contract.

• Fixed Amount Awards [200.333]
• Increased the threshold for fixed amount subawards from the previous simplified acquisition threshold ($250,000) to $500,000.

Subpart E – Cost Principles

• Prior Written Approval [200.407]
• Removal of nine categories from the list referencing prior written approval requirements.

• De minimis Indirect Cost Rates [200.414]
• Increase in de minimis rate to an amount “up to 15%.” An amount “up to” implies that an entity may not recover an amount greater than actual indirect costs incurred.
• Clarification to the requirement that pass-through entities must accept all federally negotiated indirect cost rates for subrecipients (200.414(d)).
• Clarification that a recipient or subrecipient may notify OMB of any disputes with federal agencies regarding the application of a federally negotiated indirect cost rate. However, OMB clarified they will not be a formal arbitrator of indirect cost rate disputes.

• Required Certifications [200.415]
• Added requirements for subrecipients to certify to the pass-through entity whenever applying for funds, requesting payment, and submitting reports: “I certify to the best of my knowledge and belief that the information provided herein is true, complete, and accurate. I am aware that the provisions of false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil, or administrative consequences including, but not limited to violations of U.S. Code Title 18, Sections 2, 1001, 1343 and Title 31, Section 3729-3730 and 3801-3812.” Applies to all tiers of subrecipients.

• Cost Accounting Standards [200.419]
• Removed the requirement for an Institution of Higher Education that receives an aggregate total of $50 million or more in federal awards and instruments subject to subpart E to submit a disclosure statement form (DS-2).

Subpart F – Audit Requirements (effective for fiscal years beginning on or after October 1, 2024)

Note: Subpart F retained the use of “non-federal entity” to maintain alignment with the statutory provisions of the Single Audit Act.

• Audit Requirements [200.501]
• Increase the audit threshold from $750,000 to $1,000,000.

• Report Submission [200.512]
• Guidance added to allow cognizant agency for audit or oversight agency for audit to authorize an extension when the nine-month timeframe would place an undue burden on the auditee. Previously, this responsibility was solely held by OMB.

• Audit Reporting [200.516]
• When the amount of known questioned costs is not determinable or unknown, a description of why the dollar amount was undetermined must be reported.

To conclude, the recent updates to 2 CFR 200 bring significant changes to the regulatory framework. These updates are designed to streamline processes, reduce administrative burden, and ensure better compliance with federal requirements. As organizations adapt to these changes, it is crucial to stay informed and proactive in implementing the new guidelines to maximize the benefits and maintain compliance.