In December 2014, the Obama administration finalized the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal awards, commonly referred to as the Uniform Guidance.

The rules are effective for new awards made on or after December 26, 2014. The Uniform Guidance has been described as historic reform that will make long-term changes to the Federal government’s financial assistance programs. There are several key policy reforms.

Reimbursement of Indirect Costs

This reform is getting a lot of attention. The Uniform Guidance allows nonprofits and other organizations that have never been reimbursed for indirect costs (e.g., administrative expenses and overhead) to begin applying a standard minimum rate to secure reimbursement for a portion of such costs or perhaps negotiate a higher rate.

Note that the reimbursement reform applies to both Federal agencies and “pass-through entities” carrying out part of a federal program (e.g., state and local governments receiving federal funding). This change is significant because prior to the Uniform Guidance, many pass-through entities did not pay indirect costs, even if a nonprofit had an established indirect cost rate.

The new rules could be interpreted as an affirmation that indirect costs are essential for many nonprofit organizations struggling to carry out their missions. In turn, the reform may make it easier for nonprofits not receiving federal funding to convince donors to support their indirect costs.

Required Audit Threshold

This change is also notable. When a nonprofit organization receives Federal funding, there are various requirements, including a required single audit where Federal award spending for the year is over a certain amount. The final Uniform Guidance rules raise the required audit threshold for Federal awards from $500,000 within a year to $750,000.