As governments transition to the revised Uniform Guidance (2 CFR Part 200), there are significant updates that will impact processes and compliance measures. While many of the recent Uniform Guidance changes became effective for new awards beginning October 1, 2024, their impact will be most visible in financial reporting, grant administration, and Single Audits for fiscal years ending September 30, 2025, and after.

State and local governments should pay close attention to how these changes affect their ongoing federal programs, reporting requirements, and preparation for audits. Adjustments made in response to the revised policies will shape how organizations manage grants and document their compliance throughout the year.

In this blog, we’ll review five key changes your government should be aware of for fiscal years ending after September 30, 2025, and how to prepare to ensure compliance.

Five key changes

1. Higher Single Audit threshold

Under the revised Uniform Guidance, the Single Audit threshold has been raised from $750,000 to $1,000,000 in federal expenditures. This adjustment applies to fiscal years beginning on or after October 1, 2024.

As a result of this increase, some smaller governments may find they are no longer required to undergo a Single Audit. However, it is important to note that even if a Single Audit is not required, governments must continue to maintain federal records so they remain available for review if necessary.

2. Increased capitalization thresholds

The Uniform Guidance update also provides state and local governments with greater flexibility when classifying and managing costs. One significant change is the increase in the equipment capitalization threshold, which has been raised from $5,000 to $10,000. This adjustment allows governments to capitalize equipment at a higher value, which can potentially reduce administrative burdens for smaller purchases.  All entities have the option of using the lesser of their existing capitalization policy or the federal threshold ($10,000).

In addition, fixed-amount subawards may now be issued up to $500,000 with prior federal approval. This increase enables governments to provide larger subawards without undergoing more complex administrative processes.

3. Indirect cost rate updates

The de minimis indirect cost rate has increased from 10% to up to 15%. This update provides more flexibility for entities that do not have a negotiated indirect cost rate. However, governments that already have a negotiated indirect cost rate must continue to use that rate unless it is renegotiated.

4. Expanded internal control expectations

The revised Uniform Guidance both clarifies and strengthens expectations around internal controls. Recipients or subrecipients of federal funds are expected to manage those funds in compliance with all statutes and regulations.

As part of these expectations, cybersecurity and data protection measures designed to safeguard sensitive information and federal funds should be clearly defined and explicitly implemented. If there are any instances of noncompliance, prompt corrective action should be taken.

5. Subrecipient monitoring and management expectations

The Uniform Guidance revisions continue to emphasize the importance of subrecipient and contractor oversight for governments that administer federal funds. Governments are required to properly distinguish between subrecipients and contractors to ensure compliance with federal regulations.

In addition, governments must conduct thorough risk assessments of subrecipients before making awards and perform ongoing monitoring throughout the duration of the funded activities. This includes maintaining detailed documentation of monitoring activities and any follow-up actions taken to address identified issues.

As federal funding continues to be distributed, subrecipient oversight will be a frequent area of focus during audits for fiscal years ending after September 30, 2025.

How to prepare now

To ensure compliance with the revised Uniform Guidance, governments should begin preparing now by:

• Reviewing federal awards to determine which are subject to the revised guidance
• Updating written policies relating to the affected areas
• Confirming that financial systems can effectively track federal expenditures in accordance with the new thresholds
• Coordinating early with auditors regarding Single Audit requirements

Taking the steps to proactively prepare now can help reduce audit risk and ensure your government can continue to access critical federal funding.

Final thoughts

For state and local governments, now is a critical implementation phase for the revised Uniform Guidance. While many of the changes are intended to reduce administrative burden, they also raise expectations around internal controls, documentation, and oversight. Governments that align their policies and practices now will be better positioned for audit success and long‑term grant compliance.

If your government has questions about the revised Uniform Guidance or how to ensure compliance, our Local Government team is here to help. Please contact us using the form below or reach out to any of our Local Government team leaders to start the conversation.