Federal grant compliance means following 2 C.F.R. Part 200, the Uniform Guidance that governs how every federal grant recipient budgets, spends, documents, reports, and closes out award funds.1eCFR. 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards The rules are the same whether the money comes from HHS, NSF, or the Department of Energy, and failure to follow them can force repayment, suspend current awards, or bar the organization from future federal funding. Most of the requirements are procedural rather than complicated, but they’re unforgiving: an expense that fails the test gets disallowed regardless of intent, and a missed deadline shows up in SAM.gov whether or not the underlying work was done well.
One Rulebook, Every Federal Grant
Before the Uniform Guidance was consolidated, each agency ran its own paperwork regime. Now a single framework applies to nonprofits, local governments, tribal organizations, and colleges and universities, with agencies allowed to layer on program-specific conditions but not to rewrite the core.1eCFR. 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Part 200 governs the entire life of an award, from the first budget line through record retention years after closeout. Every obligation described below traces to a specific section of it.
What You Can and Cannot Charge to the Grant
A cost qualifies for federal reimbursement only if it is reasonable, necessary for the funded work, and allocable to the specific award.2eCFR. 2 CFR 200.403 – Factors Affecting Allowability of Costs Reasonable means you could defend the price if someone asked. Allocable means the expense genuinely benefits the funded project, not general operations. An expense that fails any one test is disallowed, and you owe the money back.
Some categories are prohibited outright. Alcoholic beverages cannot be charged to federal awards under any circumstances.3eCFR. 2 CFR 200.423 – Alcoholic Beverages Entertainment is off limits unless it serves a direct programmatic purpose written into the award.4eCFR. 2 CFR 200.438 – Entertainment and Prizes Lobbying expenses are unallowable across the board, from direct legislative contact to grassroots campaigns aimed at influencing legislation.5GovInfo. 2 CFR 200.450 – Lobbying Set up your chart of accounts so these items can never accidentally land in a grant-funded line.
Consistency also matters. Costs that your organization normally treats as indirect cannot be recategorized as direct on a federal grant because it’s convenient. Inconsistent treatment invites deeper auditor review of everything else.
Costs That Require Prior Written Approval
Certain expenses need explicit written permission from the awarding agency before you incur them, including equipment purchases, foreign travel, pre-award spending, and changes to your approved budget or program plan.6eCFR. 2 CFR 200.407 – Prior Written Approval Where prior approval is specifically required for allowability, spending the money first means the cost gets disallowed. Request approval in writing, get the confirmation in writing, and keep both in the grant file.
How You Have to Run the Money Internally
Every recipient must establish, document, and maintain effective internal controls over the award.7eCFR. 2 CFR 200.303 – Internal Controls In practice, that means written policies covering expense approval, payroll, procurement, and conflicts of interest. Auditors ask for these documents first during a site visit, and their absence is treated as a control deficiency no matter how carefully you actually handle the money.
Personnel costs deserve extra attention because they’re usually the largest budget line. Employees who split time between a federal project and other work must document how their hours are allocated. The records should account for 100 percent of the employee’s time, be signed by the employee, and reconcile to payroll. Vague estimates don’t survive an audit. If payroll shows 40 percent of an employee’s time charged to a federal award, contemporaneous records need to back that figure up.
Equipment bought with federal funds has to be tracked in an inventory system throughout its useful life. Procurement records must show you followed a competitive process. Grant recipients need written procurement procedures that include open competition and conflict-of-interest protections, and written standards of conduct that bar employees involved in procurement decisions from having a financial interest in the vendors under consideration, with disciplinary consequences spelled out.8eCFR. 2 CFR 200.318 – General Procurement Standards The required level of competition scales with dollar amount: small purchases below the micro-purchase threshold need minimal documentation, purchases above it but below the simplified acquisition threshold need multiple price quotes, and larger acquisitions require sealed bids or competitive proposals.
Pass-Through Awards
If you send some of your federal funding on to another organization, you become a pass-through entity and take on responsibility for monitoring what that subrecipient does with the money. You must review their financial and performance reports, ensure corrective action on any problems, and confirm that subrecipients who cross the audit threshold get their own audits.9eCFR. 2 CFR 200.332 – Requirements for Pass-Through Entities A subaward agreement transfers the work; it does not transfer the accountability.
What You Have to Report, and When
SAM.gov Registration
Before receiving any federal award, your organization must be registered in SAM.gov with a Unique Entity Identifier, and the registration has to stay active for the full life of the award, with a review and update at least once every 365 days.10eCFR. 2 CFR Part 25 – Unique Entity Identifier and System for Award Management If registration lapses, the awarding agency cannot issue new awards or amend existing ones to add funds until you fix it.
Federal Financial Reports
Recipients file the SF-425 Federal Financial Report on the schedule set by the awarding agency, typically quarterly or annually, showing cumulative expenditures from the beginning of the award through the reporting date.11COPS Office. Helpful Hints Guide for Completing the Federal Financial Report SF-425 When annual reports are required, the SF-425 is due no later than 90 days after the end of the calendar quarter in which the budget period ends.12National Institutes of Health. Federal Financial Report FFR The numbers on the form must reconcile with your general ledger and payroll. Discrepancies are one of the most common triggers for deeper agency scrutiny.
Reports are submitted through whatever award management system the funding agency designates, not through Grants.gov, which handles finding and applying for grants rather than post-award reporting.13Grants.gov. Grant Systems An authorized representative certifies the submission with an electronic signature. Save every confirmation, tracking number, and timestamp; those receipts are your proof of timely filing if the system glitches or the agency later says nothing arrived.
Closeout
When the period of performance ends, recipients have 120 calendar days to submit all final reports and liquidate all financial obligations. Subrecipients get 90 days. Missing these deadlines has real consequences: the agency must report a material failure to comply with closeout requirements in SAM.gov, creating a publicly visible flag that affects future funding decisions.14eCFR. 2 CFR 200.344 – Closeout If your indirect cost rate isn’t finalized by the deadline, file the final financial report on time anyway and revise it once the rate settles. Extensions exist, but you have to ask for them before the clock runs out.
Record Retention and the Single Audit
Compliance does not end at closeout. Recipients must keep all financial records, supporting documentation, and statistical records for at least three years from the date of the final financial report submission.15eCFR. 2 CFR 200.334 – Record Retention Requirements For awards renewed quarterly or annually, the three-year clock resets with each report. If any litigation, audit finding, or claim tied to the award is still unresolved when the three years run, hold the records until the matter is fully closed.
Organizations that spend $1,000,000 or more in federal awards during a single fiscal year must undergo a Single Audit.16eCFR. 2 CFR 200.501 – Audit Requirements The threshold was raised from $750,000 in the April 2024 revision of the Uniform Guidance.17HHS Office of Inspector General. Single Audits FAQs The audit covers both financial statements and compliance with the requirements of each major federal program. Auditors have the right to access all relevant records and personnel; refusing to cooperate can trigger funding suspension.
A Single Audit can produce several types of findings. Questioned costs are amounts the auditor identifies as potentially noncompliant, inadequately documented, or unreasonable.18eCFR. 2 CFR 200.1 – Definitions Auditors must report questioned costs when the known or likely amount exceeds $25,000 for a type of compliance requirement within a major program.19eCFR. 2 CFR 200.516 – Audit Findings Internal control problems are classified as either significant deficiencies, which merit management attention, or material weaknesses, which create a reasonable possibility of a significant misstatement going undetected. Material weaknesses call for immediate corrective action and signal to federal agencies that the organization may not be capable of managing its awards.
Audit cost varies with organizational size and the number of federal programs involved, and can run from roughly $10,000 to well over $100,000. The cost itself is an allowable charge to your federal awards, allocated proportionally.
What Happens If You Fall Out of Compliance
Federal agencies have a graduated set of tools for dealing with noncompliance. An agency may first impose specific conditions on the award, such as extra reporting, more frequent monitoring, or restrictions on certain activities. If those don’t fix the problem, remedies escalate.20eCFR. 2 CFR 200.339 – Remedies for Noncompliance
- Withholding payments until you take corrective action.
- Disallowing specific costs, which you must then repay from non-federal sources.
- Suspending or terminating the award, in whole or in part.
- Withholding new awards or continuation funding for the project or program.
- Debarment proceedings, which exclude the organization from receiving any federal awards across the executive branch for a defined period.
Debarment is the most severe administrative penalty. A debarred organization cannot participate in any covered federal transaction as a recipient, subrecipient, or contractor on a federally funded project, and the exclusion applies to the entire organization, including all divisions and subsidiaries, unless the decision specifically limits its scope.21eCFR. 22 CFR Part 513 – Government Debarment and Suspension For organizations that live on federal funding, that’s the end of the road.
Deliberate fraud involving federal grant funds also carries civil liability under the False Claims Act, which provides civil penalties per false claim plus treble damages of three times the government’s loss.22Office of the Law Revision Counsel. 31 USC 3729 – False Claims Per-claim penalty amounts are adjusted periodically for inflation. Even unintentional misrepresentations on financial reports can create exposure, which is why the accuracy certification on every SF-425 carries real legal weight.