New Uniform Guidance on Federal Grants and De Minimis for Nonprofits
Originally published on May 30, 2024
Updated on November 13th, 2024
Significant changes surrounding federal grants could greatly benefit nonprofit organizations! Recently announced updates to the Uniform Guidance, the most substantial in the past decade, will transform how you manage and utilize federal funds. These updates are crucial for financial personnel and executive directors as they strategize to maximize grants and advance their missions.
Overview of the Major Changes
In the most immediately impactful change, the de minimis indirect cost rate has been increased from 10% to 15%. Nonprofits can now allocate a greater portion of each grant to cover indirect costs like general administrative expenses and overhead.
Additionally, the threshold for subawards in the modified total direct cost (MTDC) calculations has been raised from $25,000 to $50,000 per subaward.
Finally, the federal single audit threshold has increased from $750,000 to $1 million in grant funds spent annually. Under the new guidance, more nonprofits can avoid the complex and costly process of a single audit. This reduces the regulatory burden on smaller organizations, allowing them to focus more resources on their core activities rather than compliance.
Detailed Discussion of Each Change
De Minimis Rate Increase
The de minimis rate is a standardized method to charge or recover indirect costs like admin staff salaries. Your indirect cost rate is a percentage you use to calculate how much of a grant can be automatically used to cover those costs. Anything over that amount requires detailed justifications on the grant’s use.
Previously set at 10%, the increase to 15% is a welcome change for many nonprofits. This means you not only have an opportunity to recover more indirect costs, but you also have less administrative burden of tracking and justifying them. It’s a win-win!
Additionally, increasing the subaward threshold from $25,000 to $50,000 means federal grant recipients can include up to $50,000 of each subaward in their MTDC calculation. This in turn increases the base you use to calculate against that 15%.
Single Audit Threshold Adjustment
The federal single audit, a rigorous and detailed financial review required of organizations spending federal funds, now has a higher threshold. This adjustment from $750,000 to $1 million in spent grant money means fewer nonprofits will need to undergo these audits.
More substantially detailed than a traditional audit, a single audit focuses on programmatic compliance. The audit concludes with reports on internal control over financial reporting, compliance, and internal control over compliance and Schedule of Federal Awards (SEFA).
The comprehensive nature of a single audit is comprehensive often makes it a significant drain on a nonprofit’s resources. Lifting this requirement for smaller grants is a substantial relief for many organizations, particularly smaller ones that might struggle with the cost and complexity of the audit process.
Modified Total Direct Cost (MTDC)
Understanding modified total direct cost (MTDC) is also essential under the new guidelines. MTDC includes all direct salaries and wages, applicable fringe benefits, materials, supplies, services, travel, and up to the first $25,000 of each subaward. (Note that the 15% increase in de minimis rate is only for when using MTDC to calculate your indirect amount.)
With the new guidance, calculation of MTDC remains critical as it determines the total direct costs on which the indirect cost rate is applied. So you should be aware of how these costs are calculated and reported to ensure compliance and maximize funding opportunities.
The following example shows the difference in MTDC calculations under the new guidance:
Old Guidance (10% De Minimis Rate)
| Costs and Grants | Amounts | MTDC Calculation |
| Direct Salaries | $1,000,000 | $1,000,000 |
| Direct Education Materials | 75,000 | 75,000 |
| Subaward 1 | 150,000 | 25,000 |
| Subaward 2 | 200,000 | 25,000 |
| Subaward 3 | 500,000 | 25,000 |
| Total | $1,150,000 | |
| De Minimis Rate (Old) | 10% | |
| Allowable Indirect | $115,000 | |
New Guidance (15% De Minimis Rate)
| Costs and Grants | Amounts | MTDC Calculation |
| Direct Salaries | $1,000,000 | $1,000,000 |
| Direct Education Materials | 75,000 | 75,000 |
| Subaward 1 | 150,000 | 50,000 |
| Subaward 2 | 200,000 | 50,000 |
| Subaward 3 | 500,000 | 50,000 |
| Total | $1,225,000 | |
| De Minimis Rate (Old) | 15% | |
| Allowable Indirect | $185,750 | |
The result is an extra $68,750 of additional indirect available to be reimbursed by your grantor.
Practical Steps for Nonprofits
Take the following steps at your nonprofit to adapt to these changes:
- Update internal policies to reflect the new thresholds and rates.
- Communicate changes to staff and stakeholders to ensure everyone is on the same page.
- Review existing grants and contracts to identify areas where the new rules could affect current funding.
- Engage with CPAs and financial advisors who can provide guidance and help maximize the benefits of these changes.
These Uniform Guidance updates are meant to ease some of the financial strains on nonprofits, which in turn allows them more flexibility and capacity to focus on their primary missions. It’s a prime opportunity to reassess and potentially recalibrate your financial and administrative strategies when it comes to federal grants.
As you move forward, stay informed and proactive in your communication with grantors. Each nonprofit’s situation is unique. While these changes are broadly beneficial, the specific impact can vary.
You can also seek the help of James Moore’s nonprofit financial professionals to leverage these changes to your nonprofit’s advantage. That and maintaining a clear dialogue with funding agencies can ensure your organization remains compliant and makes the most of the new federal grant environment.
