2 CFR 200 for Grant Managers: The Practical Compliance Guide Nobody Gave You

What 2 CFR 200 Actually Is (and Why Most Grant Managers Learn It the Hard Way)

2 CFR Part 200 — formally titled "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards" — is the single regulatory framework governing how every dollar of federal grant money gets spent, tracked, and audited. It applies to every non-federal entity receiving federal funds: nonprofits, universities, state and local governments, and tribal organizations.

Before 2014, compliance requirements were scattered across eight different OMB Circulars (A-21, A-87, A-110, A-122, A-133, and others). The Uniform Guidance consolidated them into one document. That was supposed to make life simpler. In practice, it created a 200-plus-section regulation that most grant managers absorb piecemeal — usually after something has already gone wrong in an audit.

This guide covers what you actually need to know: the subparts that matter for day-to-day operations, the cost principles that trip people up, the procurement thresholds that changed in 2024 and 2025, and the audit findings that show up with frustrating regularity across single audits nationwide.

The Structure: Six Subparts, Three That Run Your Life

2 CFR 200 is organized into six subparts. Understanding the architecture saves you from flipping through hundreds of sections looking for the one rule you need.

Subpart A — Definitions (§200.1). Every defined term in the regulation lives here. When a colleague argues about whether something counts as "equipment" versus "supplies," this is where you settle it. The 2024 revision restructured this section significantly, consolidating all definitions into §200.1 instead of scattering them across multiple sections.

Subpart B — General Provisions (§200.100–200.113). Sets the applicability rules, explains the relationship between the Uniform Guidance and agency-specific regulations, and establishes the effective dates. Most grant managers read this once and move on.

Subpart C — Pre-Federal Award Requirements (§200.200–200.216). Governs what happens before the money arrives: how agencies must publicize funding opportunities, merit review requirements, and the information that must appear in the notice of award. This subpart matters more to federal program officers than to grant managers, but understanding §200.211 (information contained in the federal award) helps you know exactly what your award terms should include.

Subpart D — Post-Federal Award Requirements (§200.300–200.346). This is where grant management lives. Financial management standards (§200.302), internal controls (§200.303), payment procedures (§200.305), cost sharing (§200.306), program income (§200.307), property management (§200.310–200.316), procurement (§200.317–200.327), performance and financial reporting (§200.328–200.329), subrecipient monitoring (§200.332), and record retention (§200.334). If you manage a federal award, you are in Subpart D every week.

Subpart E — Cost Principles (§200.400–200.476). The rules for what you can and cannot charge to a federal award. This subpart determines whether every line item on every invoice is allowable, allocable, reasonable, and consistently treated. It also contains the Selected Items of Cost (§200.420–200.476) — the specific rulings on 57 cost categories from advertising to travel.

Subpart F — Audit Requirements (§200.500–200.521). Governs when a single audit is required, what auditors must examine, and what happens when they find problems. If your organization expends $1,000,000 or more in federal awards during a fiscal year (raised from $750,000 in the 2024 revision), you need a single audit.

For daily grant management, Subparts D, E, and F are the ones that determine whether you stay compliant or end up writing corrective action plans.

Cost Principles: The Four Tests Every Expense Must Pass

Every cost charged to a federal award must satisfy four criteria simultaneously. Fail any one of them, and the cost is disallowed — meaning your organization must repay it from non-federal funds.

1. Reasonable (§200.404)

A cost is reasonable if a prudent person would have incurred it under the same circumstances at the time the decision was made. The regulation specifically asks: Is this the kind of expense that a careful steward of someone else's money would approve?

Reasonableness is contextual. A $3,000 laptop for a data scientist running machine learning models is reasonable. The same $3,000 laptop for a project coordinator who uses email and Word is harder to justify. A $500 team dinner for six people after a multi-day planning retreat is probably reasonable. A $500 dinner for two people is going to draw questions.

The test is not whether you personally think the expense was justified. The test is whether an independent reviewer — an auditor, an inspector general, a program officer — would find your rationale defensible.

2. Allocable (§200.405)

A cost is allocable to a federal award if it was incurred specifically for that award, or if it benefits multiple projects and can be distributed in reasonable proportion to the benefit each project receives.

This is where cost allocation plans and indirect cost rate agreements become essential. If a staff member splits time between two grants and general organizational operations, their salary must be allocated proportionally — not dumped entirely onto whichever grant has the most remaining budget. If a piece of equipment serves three projects, the cost must be distributed among them.

The allocability requirement also prohibits double-charging. A cost assigned as a direct charge to one award cannot also be recovered through indirect costs on the same or another award. This sounds obvious, but it is one of the most common audit findings in practice.

3. Consistent (§200.403)

Costs must be treated consistently across all of your organization's activities — both federally funded and non-federally funded. If you charge administrative staff salaries as a direct cost on a federal grant, you cannot simultaneously include those same types of positions in your indirect cost pool for other awards.

Consistency also applies across time. If your organization has historically treated a particular cost category as indirect, you cannot reclassify it as direct for one specific award because the budget happens to allow it. Auditors will review your cost treatment patterns across multiple fiscal years.

4. Allowable Under the Terms of the Award

Even if a cost is reasonable, allocable, and consistently treated, it still must be permitted under both the Uniform Guidance and the specific terms of your federal award. Subpart E, §200.420 through §200.476, lists 57 specific cost categories with rulings on whether each is allowable, unallowable, or allowable with conditions.

Always unallowable: Alcoholic beverages (§200.423), entertainment (§200.438 — with narrow exceptions for costs integral to the award's purpose), fines and penalties (§200.441), lobbying (§200.450), and fundraising (§200.442).

Allowable with conditions: Travel (§200.475 — must follow your organization's travel policy or the federal travel regulations), equipment over $10,000 (§200.439 — requires prior written approval), participant support costs (§200.456 — must be in the approved budget), and foreign travel (requires prior approval from most agencies).

Commonly misunderstood: Food costs at working meetings are allowable under specific circumstances and when included in the approved budget, but the documentation burden is high. You need the business purpose, list of attendees, relationship to the project, and evidence that the cost was not entertainment. Many organizations ban food charges on federal awards entirely because the compliance risk exceeds the benefit.

Procurement Standards: The Thresholds That Changed

The procurement rules in §200.317 through §200.327 are where many organizations accumulate audit findings. The 2024 and 2025 revisions updated key dollar thresholds, and applying the wrong threshold to a purchase is a straightforward compliance violation.

Current Thresholds (Awards Made On or After October 1, 2025)

Micro-purchase threshold: $15,000 (increased from $10,000). Purchases at or below this amount can be made without soliciting competitive quotes. You still need to distribute purchases equitably among qualified suppliers and cannot use micro-purchasing to split larger procurements. The previous threshold of $10,000 applied to awards made between October 1, 2024, and September 30, 2025. Awards made before October 2024 used the $10,000 threshold from the original guidance.

Simplified acquisition threshold: $350,000 (increased from $250,000). Purchases above the micro-purchase threshold but at or below $350,000 require price or rate quotations from an adequate number of qualified sources — which in practice means at least two, though three is safer for audit documentation. You must use the small purchase method: obtain quotes, document them, and select the most favorable.

Above $350,000: You must conduct a full competitive procurement using either sealed bids or competitive proposals. This requires a cost or price analysis, and the process must comply with all applicable federal, state, and local procurement regulations.

What Triggers Procurement Findings

Failure to document competition. You got three quotes, but you only saved one in the file. Or you documented the winning vendor's quote but not the others. Auditors need to see the full competitive process.

Splitting purchases to stay under thresholds. Buying $12,000 of lab supplies from one vendor in March and $12,000 from the same vendor in June for the same project, specifically to avoid the simplified acquisition threshold, is procurement splitting. It is a compliance violation regardless of whether each individual purchase is under the micro-purchase limit.

Inadequate conflict of interest documentation. §200.318(c)(1) requires written standards of conduct covering conflicts of interest for employees engaged in procurement. Many organizations have a conflict of interest policy somewhere in an employee handbook. That is not sufficient. You need documented procedures specific to procurement, and employees involved in procurement decisions must disclose conflicts.

Not using the correct method. Noncompetitive procurement (sole source) is only permissible under the four conditions in §200.320(c): the item is only available from a single source; a public emergency exists; the federal agency expressly authorizes it; or after solicitation of a number of sources, competition is determined inadequate. "We always use this vendor" and "they gave us a good price last time" are not qualifying justifications.

Time and Effort Reporting: §200.430

Compensation for personal services — salaries, wages, and fringe benefits — is typically the largest cost category on any federal award. The requirements for documenting personnel costs are in §200.430, and getting them wrong is a reliable path to audit findings.

What the Regulation Requires

Charges for salaries and wages must be based on records that accurately reflect the work performed. These records must:

• Be supported by a system of internal controls that provides reasonable assurance that charges are accurate, allowable, and properly allocated
• Be incorporated into the official records of the organization
• Reasonably reflect the total activity for which the employee is compensated, not just the federally funded portion
• Encompass both federally assisted and all other activities on an integrated basis
• Comply with the organization's established accounting policies and practices
• Support the distribution of the employee's salary among specific activities or cost objectives

What This Means in Practice

If an employee works 100% on a single federal award, the documentation is straightforward: timesheets or payroll records showing that the employee was paid and worked during the period, plus a certification that 100% of their effort was devoted to the award.

If an employee splits time across multiple awards or between an award and non-sponsored activities, you need an after-the-fact activity report — commonly called a time-and-effort report or personnel activity report — showing the actual distribution of effort. Budget estimates or planned allocations can be used on an interim basis, but they must be reconciled to actual activity. The Uniform Guidance does not prescribe a specific reconciliation frequency, but the reconciliation must happen regularly enough to catch and correct errors.

The Reconciliation Trap

Many organizations set up payroll distributions based on the approved budget at the start of a project and never reconcile them. A principal investigator budgeted at 30% effort on a grant may actually spend 40% of their time on it in some months and 15% in others. If the payroll distribution charges a flat 30% every pay period and no one ever reconciles to actual effort, the charges are not based on after-the-fact records of actual work performed.

The reconciliation does not need to happen every pay period, but it must happen at reasonable intervals. Many institutions use quarterly or semi-annual reconciliation cycles. The key is that adjustments are actually made when actual effort differs from the interim allocation.

Equipment and Property Management

The 2024 revision made a significant change to equipment definitions and management rules that affects everyday purchasing decisions.

The $10,000 Equipment Threshold

Equipment is now defined as tangible personal property with a useful life of more than one year and a per-unit acquisition cost of $10,000 or more (§200.1). The previous threshold was $5,000. This change, effective for awards made on or after October 1, 2024, means that items costing between $5,000 and $9,999 are now classified as supplies rather than equipment.

Why this matters: equipment purchases over $10,000 require prior written approval from the federal awarding agency for special purpose equipment (§200.439). Equipment is also subject to property management requirements including physical inventories at least every two years, maintenance procedures, and disposition rules when the project ends. Items classified as supplies have none of these ongoing management requirements.

Prior Approval Requirements

General purpose equipment — items usable for activities beyond the scope of the federal award (computers, office furniture, vehicles) — requires prior written approval regardless of cost. Special purpose equipment — items used only for research or other project-specific purposes (a mass spectrometer, a specialized environmental sensor) — requires prior approval only when the per-unit cost is $10,000 or more.

Failing to obtain prior approval when required does not automatically make the cost unallowable, but it creates a compliance finding and puts the burden on you to demonstrate that the purchase was necessary and that you would have received approval had you asked.

Disposition

When a federally funded project ends, equipment with a current fair market value of $10,000 or more requires disposition instructions from the federal agency. Equipment worth less than $10,000 can be retained, sold, or otherwise disposed of with no further obligation to the federal government. The increased threshold from $5,000 to $10,000 significantly reduces the number of items requiring formal disposition procedures at project closeout.

The 2024 Revision: Key Changes You Need to Operationalize

The most significant revision to 2 CFR 200 since its original 2014 publication took effect on October 1, 2024. Here are the changes that require operational adjustments, not just awareness.

De minimis indirect cost rate increased to 15%. Organizations without a negotiated indirect cost rate agreement (NICRA) can now apply a 15% de minimis rate to modified total direct costs, up from 10% (§200.414). If your organization has been using the 10% rate, you can adopt the 15% rate for new awards. This is real money — on a $500,000 direct-cost award, it is the difference between $50,000 and $75,000 in indirect cost recovery.

Single audit threshold raised to $1,000,000. Organizations expending less than $1,000,000 in federal awards during a fiscal year no longer require a single audit (§200.501). This removes the audit burden from smaller grantees, but those organizations still must maintain records available for review and may be subject to agency-specific audits.

Fixed amount subaward cap increased to $500,000. Recipients can now issue fixed amount subawards up to $500,000 with prior written approval from the federal agency, up from $250,000 (§200.333). Fixed amount subawards simplify administration because you pay based on deliverables rather than reimbursing actual costs, eliminating the need to review the subrecipient's detailed expenditure records.

MTDC subaward inclusion raised to $50,000. The first $50,000 of each subaward (up from $25,000) is now included in the modified total direct cost base for indirect cost calculation (§200.1). For organizations that issue many subawards, this increases the base on which indirect costs are calculated.

Mandatory disclosure requirements strengthened. Recipients and subrecipients must now "promptly" disclose credible evidence of fraud, conflict of interest, bribery, gratuity violations, or civil False Claims Act violations (§200.113). The previous language was less prescriptive about timing. Failure to disclose is itself a compliance violation, independent of whatever underlying issue triggered the disclosure obligation.

Tribal sovereignty recognition. Indian Tribes may now follow their own procurement policies and procedures rather than the procurement standards in §200.317–200.327, placing them on equal footing with states.

Common Single Audit Findings (and How to Avoid Them)

Single audit findings recur across organizations and fiscal years with remarkable consistency. Auditors report the same categories of noncompliance because organizations make the same operational mistakes. Here are the findings that appear most frequently in Federal Audit Clearinghouse data, along with practical prevention measures.

Procurement documentation gaps. The most common finding is not that organizations fail to compete procurements — it is that they fail to document the competition. Keep a procurement file for every purchase above the micro-purchase threshold. Include the solicitation, all responses received, the evaluation criteria, the basis for selection, and any conflict of interest disclosures. If you used sole source justification, document which of the four permissible conditions in §200.320(c) applied and why.

Subrecipient monitoring failures. §200.332 requires pass-through entities to evaluate each subrecipient's risk of noncompliance, monitor activities during the subaward period, and verify that subrecipients expending $1,000,000 or more in federal funds have completed a single audit. Many organizations issue subawards and then treat them like vendor contracts — sending money and expecting deliverables without evaluating financial or programmatic compliance. Develop a monitoring plan for each subaward, conduct periodic reviews of financial reports and supporting documentation, and document the monitoring activities performed.

Late or missing financial and performance reports. Reporting deadlines in federal awards are not suggestions. Late reports can trigger a hold on funding drawdowns. Missed reports can escalate to a finding of noncompliance in the single audit. Build a reporting calendar at the start of every award with deadlines for interim and final reports, and assign responsibility for each report to a specific person.

Inadequate time-and-effort documentation. As discussed above, payroll charges that are not supported by after-the-fact activity reports reflecting actual work performed will be questioned. Implement a time-and-effort certification process that operates at regular intervals, not just at the end of the project period.

Unallowable costs charged to federal awards. Food, travel exceeding policy limits, pre-award costs incurred before the authorized start date, and costs outside the scope of the approved budget are recurring findings. The prevention is straightforward but requires discipline: review every significant expenditure against the approved budget, the award terms, and the Selected Items of Cost in Subpart E before approving the charge.

Missing or inadequate internal controls. §200.303 requires recipients to establish and maintain effective internal control over the federal award that provides reasonable assurance that they are managing the award in compliance with all applicable requirements. Auditors look for segregation of duties, documented approval processes, regular reconciliations, and evidence that controls are actually operating — not just documented in a policy manual.

Building a Compliance Infrastructure That Works

Compliance is not a year-end exercise. It is an operational practice that should be embedded in how your organization manages every federal award from day one.

Maintain a compliance calendar. For each award, track reporting deadlines, prior approval requirements, budget period end dates, and records retention timelines. Review the calendar monthly at minimum.

Train staff who touch federal funds. Anyone who approves purchases, processes invoices, certifies time and effort, or submits reports needs to understand the basic compliance requirements relevant to their role. Annual training is the minimum; onboarding training for new staff is essential.

Conduct internal monitoring. Do not wait for the single audit to discover compliance problems. Review procurement files quarterly. Sample-test payroll allocations against time-and-effort reports. Verify that subrecipient monitoring activities are occurring on schedule. Internal monitoring catches problems when they are correctable, not when they are audit findings.

Document everything. The Uniform Guidance's record retention requirement is three years from the date of final expenditure report submission (§200.334), but many agencies require longer. Assume that every decision, every approval, every competitive procurement, and every cost allocation will need to be explained to an auditor who has no context about your organization or your project. If the documentation cannot stand on its own, it is not sufficient.

Frequently Asked Questions

Can we use the new $15,000 micro-purchase threshold on awards that were made before October 2025?

No. The procurement thresholds that apply to your award are determined by the award date, not the date of the purchase. Awards made before October 1, 2024, use the original thresholds ($10,000 micro-purchase, $250,000 simplified acquisition). Awards made between October 1, 2024, and September 30, 2025, use the 2024 thresholds ($10,000 micro-purchase, $250,000 simplified acquisition). The increased thresholds of $15,000 and $350,000 apply only to awards made on or after October 1, 2025. Additionally, if your state or local procurement laws set a lower threshold, the more restrictive rule applies regardless of the federal threshold.

Our organization has never negotiated an indirect cost rate. Can we start using the 15% de minimis rate immediately?

For new awards made on or after October 1, 2024, yes. The 15% de minimis rate under §200.414(f) is available to any non-federal entity that has never had a negotiated rate. You apply it to your modified total direct costs (MTDC) without needing to negotiate with a cognizant agency. However, this rate is not automatic — you must elect to use it, and you should verify with your federal awarding agency that they accept the de minimis rate for your specific program. Some agencies have historically required organizations to negotiate a rate even when the de minimis option is available. For existing awards made before October 2024, the 10% de minimis rate remains in effect unless the award terms are amended.

What happens if we discover an unallowable cost was charged to a federal award?

Remove it promptly. Transfer the charge to a non-federal funding source and document the correction, including when the error was discovered, what caused it, and what steps you are taking to prevent recurrence. If the error is discovered during a single audit, the auditor will report it as a finding, and you will need to prepare a corrective action plan. Voluntary disclosure of errors before an audit discovers them is viewed more favorably than errors found during audit testing. If the unallowable charge involves potential fraud, conflict of interest, or False Claims Act implications, the mandatory disclosure requirements in §200.113 apply and you must notify the federal awarding agency promptly.

How do we determine whether a subrecipient needs a single audit?

A subrecipient that expends $1,000,000 or more in federal awards during their fiscal year (the threshold increased from $750,000 effective for fiscal years beginning on or after October 1, 2024) is required to have a single audit. As a pass-through entity, you are required to monitor whether your subrecipients meet this threshold and to verify that required audits are completed and findings are addressed. Include a provision in your subaward agreement requiring the subrecipient to notify you of their total federal expenditures and to provide copies of their single audit reports. If a subrecipient is not subject to single audit, you must still perform sufficient monitoring to ensure compliance — which may include reviewing financial reports, conducting site visits, or requiring agreed-upon procedures engagements.

Is prior approval always required for equipment purchases on federal grants?

It depends on the type of equipment. General purpose equipment — items that can be used for purposes beyond the federal award, such as computers, vehicles, or office furniture — always requires prior written approval regardless of cost. Special purpose equipment — items used exclusively for research or project-specific purposes — requires prior approval only when the per-unit cost is $10,000 or more (the threshold increased from $5,000 in the 2024 revision). Check your specific award terms, because some agencies impose additional prior approval requirements beyond what the Uniform Guidance mandates. When in doubt, request approval. An unnecessary approval request costs you nothing; an unapproved purchase that should have been approved creates a compliance finding.

Navigating 2 CFR 200 does not require memorizing every section — it requires understanding the principles well enough to recognize when a decision needs closer scrutiny. Granted helps grant teams find funding opportunities that match their strengths, so you can focus your compliance energy on awards you are well-positioned to manage successfully.