Are You Prepared for the 2025 Compliance Supplement and Audit Changes

On November 26, 2025, the Office of Management and Budget (OMB) issued the 2025 Compliance Supplement. The Supplement outlines the compliance requirements to assist auditors in understanding the Federal program’s objectives, procedures and requirements when performing a Single audit for fiscal years beginning after June 30, 2024. The Compliance Supplement is normally issued in the spring of each year; however, OMB delayed its issuance to incorporate significant updates to 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, in October 2024. In order to assist auditors with the different requirements, Part 3 Compliance Requirements of the Supplement was divided into two Parts for audit testing as follows:

• Part 3.1 for awards subject to 2 CFR 200 prior to October 2024 and
• Part 3.2 for awards after October 1, 2024

The requirements were split because, after October 1, 2024, the thresholds increased, procurement standards became stricter, subrecipient monitoring became a greater focus, and reporting requirements changed. Additionally, there is greater emphasis on establishing strong internal controls and ensuring organizations comply with them.

Auditors must review federal award terms and their effective dates to ensure they apply the correct version of the audit procedures.

What Does the Audit Entail?

The Compliance Supplement includes the areas that auditors will test for compliance with the regulations and your policies, which include but are not limited to:

• Schedule of Federal Expenditures (SEFA)
• Internal Controls Covering Key Requirements
• Subawards Classification and Monitoring
• Prior Year Findings Resolved
• Procurement

Schedule of Federal Expenditures (SEFA)

Organizations will need to prepare a SEFA report for the auditors. This is a list of total expenditures for the fiscal year by agency and program, including amounts for sub-recipients to assist auditors in performing audits of the major programs.

Internal Controls Covering Key Requirements

Organizations should have a system of internal controls in place with written policies and procedures required by 2 CFR 200 (e.g., cash management, procurement, travel, allowability of costs per the cost principles, equipment, etc.). Auditors will test transactions for compliance with the regulations and your policies.

Subawards Classification and Monitoring

Recipients are required to classify subawards at the time of award, evaluate risk, monitor subrecipients, ensure that a single audit is performed if applicable, resolve audit findings, and report first-tier subawards in accordance with the Federal Funding Accountability and Transparency Act (FFATA). Auditors will test compliance with regulations and policies for classifying and monitoring subawards, as well as testing first-tier subawards under FFATA.

Prior Year Findings Resolved

Organizations need to ensure that any audit findings from prior audits have been resolved or that corrective actions are being performed in a timely manner. Auditors will review prior audits and audit findings to determine if findings were resolved.

Procurement

Organizations need written procurement policies and must comply with debarment requirements. Auditors will test procurement transactions to ensure compliance with regulations, policies, and debarment requirements.

Takeaways

Having limited, if any, audit findings is the best path forward when dealing with the Federal Government. Be proactive and know what the auditors may find before they do.

Helping You Prepare for Audit and Strengthen Grant Compliance

As audit requirements grow more complex, especially under the updated 2025 Compliance Supplement, it is essential for government contractors and grant recipients to proactively evaluate internal systems, documentation, and prior audit findings. Redstone GCI provides tailored support to help organizations prepare for Single Audits, resolve audit findings, and strengthen compliance with federal award requirements. Our team of experts assists in developing corrective action plans, preparing policy and procedure documentation, and offering Accounting and Procurement Manual templates for both non-profit and for-profit entities. We also support the establishment of compliant accounting systems, offer ongoing accounting services, and perform cost or price analyses as needed. In addition, we assist with post-award activities, including preparing SF-425 reports, reviewing invoices, and evaluating internal controls. To help teams stay aligned with requirements, we offer targeted training on grant compliance, timekeeping, and internal process execution. Redstone GCI is committed to assisting contractors in reducing risk, responding effectively to audit expectations, and maintaining eligibility for future awards.