Get Up to Speed on Significant Changes to 2 CFR Regulations Effective October 2024

The Office of Management and Budget (OMB) issued a final rule revising 2 Code of Federal Regulations (CFR), now called OMB Guidance for Federal Financial Assistance, to streamline and clarify the rules for federal financial assistance (e.g., grants and cooperative agreements). Agencies must implement the Final Rule by October 1, 2024. These rules will apply to new grants and can be applied to existing grants by a bi-lateral modification. Although OMB indicates that agencies may apply the new rules beginning June 21, 2024, we believe most federal agencies will wait so that both the agencies and the recipients have time to read and digest some of these updates.

Most grant documents state that they should follow 2 CFR 200, but now that there are significant changes, it is important to know which regulations apply. Federal agencies must maintain an archive of previous versions of the terms and conditions with effective dates on their website. Under § 200.211, recipients can (and should) request a copy of the full text of the general terms and conditions from the Federal Agency. Subrecipients should be proactive and request the regulations applicable to their sub-award. It is important that you understand which terms and conditions apply to your grant.

Non-federal entities (e.g., State, local government, Indian tribe, Institution of Higher Education (I.H.E.), or nonprofit organization) are subject to 2 CFR 200 and the cost principles in Subpart E, unless a nonprofit receives an exemption to use the cost principles in FAR part 31. For-profit entities that receive financial assistance subject to 2 CFR will still follow the 2 CFR 200 regulations but will follow the cost principles in FAR part 31.

We previously issued an article when the OMB proposed rule was issued requesting comments. Let’s see what changes were implemented.

While this list is not all-inclusive, let’s take a look at some of the major revisions.

• Increase the single audit or program-specific audit threshold from $750,000 to $1,000,000. § 200.501
• Increase the threshold for equipment and supplies from $5,000 to $10,000. § 200.1, § 200.313 and § 200.314
• Added language that unused supplies in new condition that exceed $10,000 may be retained or sold, with the federal agency/recipient receiving their share of the contribution less $1,000 to cover expenses associated with selling the supplies. § 200.314
• Raise the de minimis rate from 10 percent to 15 percent. § 200.414
• Adds board members to the list of subrecipient or contractor personnel that must be considered under conflicts of interest § 200.318(c)
• The amount of each sub-award included in the “Modified Total Direct Cost (MTDC)” indirect base was increased from up to $25,000 to up to $50,000. § 200.1
• Increase the amount for Fixed Amount subawards to subrecipients from $250,000 to $500,000. § 200.333
• Added language to indicate that unexpended funds on a fixed award are not considered profit and can be retained by a recipient/subrecipient after certification in writing that the required program activities are complete. § 200.400(g)
• Added language that prior approval is required for revisions to the budget or program plan for sub-awards not proposed/approved in the original award, transfer of funds between construction and non-construction work, and no-cost extensions. § 200.308
• Added language to Mandatory Disclosures that recipients/subrecipients must promptly disclose violations when there is credible evidence and added that the agency’s Office of Inspector General be added to the notification in writing. § 200.113
• Added a new section on Whistleblower Protections – recipient/subrecipient must inform their employees in writing of employee whistleblower rights and protections under 41 U.S.C. 4712. § 200.217 Redstone GCI has a module in our Learning Management System on Whistleblower requirements that may be helpful.
• Added language to internal controls to take reasonable cybersecurity measures, including protected personally identifiable information (PII). § 200.303(e)
• Removes the following items from the prior written approval requirements to reduce Federal agency and recipient burden.
• Use of grant agreements, cooperative agreements, and contracts
• Real property
• Equipment
• Direct costs
• Entertainment costs
• Memberships, subscriptions, and professional activity costs,
• Participant support costs
• Selling and marketing costs
• Taxes (including Value Added Tax)

• Added language to allow administrative closeout costs to be incurred and charged in the final budget period prior to the date of the final report, if there are available funds. § 200.403(h)
• Removes the disclosure statement requirement for an Institute of Higher Education (I.H.E.) that receives an aggregate total of $50 million or more in Federal awards subject to subpart E from § 200.419. I.H.E.s would still be required to comply with the CAS standards, just not submit a DS-2.
• Adds a requirement for recipients or subrecipients to consider, as part of a responsibility determination, whether contractors properly classify employees under the Fair Labor Standards Act. § 200.318(h) Refer to our article “Department of Labor Issues New Rules on Employee Classifications.”
• Added a new requirement that subrecipients must certify to the recipient when applying for funds, requesting payment, and submitting final reports, similar to the recipient’s certification to the Federal agency. § 200.415(b)

Grants that are currently in process will use the regulations in effect on the date of their award unless the Federal Agency issues a modification to the grant. After October 2024, recipients may end up having grants subject to the old and new regulations. This can make it difficult when determining the threshold for the single audit requirements (i.e., $750,000 or $1,000,000) and other requirements. Recipients should request a modification to use the new thresholds or obtain approval in writing from their federal agency when they have grants with two different single audit reporting threshold requirements. Any direction received from the Federal agency should be maintained in writing.

Takeaways

While the Federal Agencies are providing OMB their implementation dates, the regulations go into effect October 1, 2024. Whether you are a recipient or subrecipient submitting proposals in response to Funding Opportunity Announcements under grants, you need to read and understand the updates to the 2 CFR 200 regulations. Even though you currently have a grant/contract subject to 2 CFR 200, there are still new requirements in internal controls, certifications from subrecipients, whistleblower notifications, etc. We recommend that written policies be updated.

Redstone GCI can assist your company by drafting or reviewing accounting policies, establishing indirect rates, and drafting or reviewing procurement policies and procedures. We also prepare or review quarterly financial reports for the government, provide templates for documenting contractor/subrecipient determinations, and offer monthly accounting support or assistance in setting up accounting structures. Additionally, we help develop equipment/property policies and offer training on 2 CFR 200 through webinars or onsite sessions.