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Uniform Grants Guidance Overhaul: A Break-Down for Nonprofits

Tuesday, June 25, 2024

This year, the OMB (Office of Management and Budget) is overhauling aspects of federal grant guidance. Don’t be nervous, though! This overhaul is designed to help nonprofits and other recipients of federal funding. The goal of the changes is to improve the performance of the program, de-complexify the process for grant-seekers, and mitigate the risk of misappropriation of federal funds.

The reform is important because about a third of nonprofit revenue comes from federal grants. And your nonprofit could benefit. The Uniform Grants Guidance final rule takes effect on October 1, 2024.

Let’s dive in to learn more about these changes.

What’s changing?

Details Regarding Indirect Cost Rates

Increase to the De Minimis Rate

The de minimis rate in the Uniform Grant Guidance is a simple way for nonprofits to charge indirect costs to federal grants. Originally, nonprofits without a negotiated indirect cost rate could use a flat rate of 10% of their modified total direct costs (MTDC).

The change being made is the increase of the de minimis rate from 10% to 15%.

This change benefits smaller organizations and those without negotiated indirect cost rates, making it easier for them to recover a portion of their indirect costs associated with grant activities. It also helps level the playing field for these smaller organizations who may not have the resources to develop and negotiate their own indirect cost rates.

No Bullying Nonprofits into Lower Indirect Cost Rates

The Uniform Grants Guidance changes introduce a crucial clarification that protects nonprofit organizations from being coerced into accepting lower indirect cost rates. Specifically, the guidance stipulates that government agencies cannot compel recipients and subrecipients to use an indirect cost rate lower than the established 15% de minimis rate unless a lower rate is explicitly mandated by statute.

Essentially, nonprofits cannot be bullied into accepting an indirect cost rate lower than 15%.

While organizations have the option to voluntarily forgo the 15% minimum rate, they cannot be forced to do so. This empowers nonprofits to make informed decisions about their funding and cost recovery strategies without undue pressure from grant-making entities. By safeguarding the 15% de minimis rate, the revised guidance promotes financial stability and fairness, allowing nonprofits to focus more on their missions and less on negotiating unfavorable terms.

Indirect Cost Dispute Notice

To further protect nonprofits, the revised Uniform Grant Guidance includes an update stating that recipients and subrecipients can notify the OMB if they encounter any disputes with a federal agency regarding the application or acceptance of federally negotiated indirect cost rates.

This provides a formal avenue for nonprofits to seek assistance and resolution from OMB if they believe federal agencies are not adhering to established regulations.

This added layer of oversight helps protect nonprofits from potential abuses or misunderstandings, ensuring that they can fully benefit from the funding and recover the necessary indirect costs to sustain their operations.

Negotiated Indirect Cost Rates Must be Adhered to

According to the new OMB guidance, if a nonprofit has a negotiated indirect cost rate with one federal agency, that rate must be honored by all other federal, state, and local government agencies involved in the funding process. This change ensures consistency and fairness, preventing different agencies from applying varying indirect cost rates to the same nonprofit.

Therefore, federally negotiated indirect cost rates (NICRAs) must be accepted and honored by pass-through entities.

Processes for Grant Seeking and Acceptance

Previous guidance for grant seekers made the process of applying for, accepting, and reporting on grants unnecessarily complicated. The OMB released changes that are designed to help those who most need federal funding assistance by simplifying these requirements.

Some of the changes that will help simplify this process are as follows:

  • It will no longer be mandatory to exclusively use the English language in grant notices, applications, and reporting.
  • Recipients of federal grant funding are urged to engage members of the community that will be impacted by the provided funding.
  • Revisions on the Notices of Funding Opportunities (NOFOs) are designed to include basic information at the top of the grant announcement. This way, organizations can more easily decide whether to apply. NOFOs will also include an executive summary in plain language to clearly communicate requirements.
  • Federal agencies are urged to take diversity into account when developing policies and procedures for merit review panels.
  • OMB encourages federal agencies to work in collaboration with impacted communities when designing programs.
  • OMB is changing the reporting requirements for program performance, only requiring reports that are necessary to effectively monitor the grant. Other unnecessary reports will not be required.

Fewer complexities help more organizations and individuals who truly need federal funding to have a fair chance of receiving it. It lowers the barrier of entry for these organizations to apply for, receive, and report on funding.

The Single Audit Threshold

The single audit threshold for federal grant funding is a financial threshold that determines when a non-federal entity is required to undergo a single audit. As of the latest regulations, any non-federal entity, such as a nonprofit organization, state, local government, or Indian tribe, that expends $750,000 or more in federal awards during a fiscal year must have a single audit conducted.

In accordance to the new Uniform Grants Guidance, this threshold will increase from $750,000 to $1,000,000.

A single audit is a comprehensive financial statement and federal awards audit. It aims to ensure that federal funds are managed properly and in compliance with federal requirements. This includes reviewing the entity's financial statements, internal controls, and compliance with laws and regulations related to the federal awards.

The single audit helps provide assurance to federal agencies that the funds are being used appropriately and that the entity is adhering to the terms and conditions of the grants.

Wrapping Up

Finally, the OMB reinforced the existing guidelines favoring up-front payments to organizations over reimbursable grant payments. Only when certain criteria are met should the recipient or subrecipient receive reimbursable grants.

Overall, these changes are designed to help nonprofits and other entities receiving federal funding. It should help organizations that are the most deserving receive the funding and lower administrative costs associated with grant funding.

If you’d like to read more on the subject, check out the National Council of Nonprofits’ analysis.