Grant Compliance 101: What Uniform Guidance Actually Requires

If your nonprofit receives federal funds, directly or as a subrecipient, Uniform Guidance (2 CFR Part 200) already governs how you track, allocate, and document every dollar. Most of the compliance findings I see in nonprofit audits don’t come from fraud. They come from organizations that never translated the regulation into a repeatable internal process.

Here’s what Uniform Guidance actually requires, and what that looks like in practice.

Allowability and Allocability: Every cost charged to a grant has to be allowable under the grant terms and allocable to the program that benefited from it. Review award terms and cost principles before coding a single transaction. Build a cost allocation methodology for shared expenses (rent, utilities, admin salaries) and apply it consistently. Keep the methodology itself on file, not just the resulting numbers.

Time and Effort Reporting: If staff are paid in part from a federal award, their time needs to be documented in a way that reflects actual effort, not budgeted estimates. Semi-annual certifications or after-the-fact time studies are the two common approaches. Either way, the record has to exist and has to be signed.

Subrecipient Monitoring: If your organization passes federal funds to another entity, you’re responsible for monitoring how they spend it, not just cutting the check. That includes a risk assessment before the award and monitoring procedures during it.

Documentation and Retention: Uniform Guidance generally requires records to be retained for at least three years from the date of the final expenditure report, longer if there’s unresolved audit activity. Award letters, budget modifications, time records, procurement documentation, and subrecipient agreements should live in one place your accountant and auditor can access.

Where This Usually Breaks Down: Almost every grant compliance finding traces back to the same root cause, nobody defined the process in writing before the money started moving. None of this requires a monthly retainer to fix. It requires a system, built once and followed consistently.

Where to Start: If you want a working tool to assess your current grant tracking, the Grant Tracking Guide on our Free Resources page walks through restricted funds, reporting deadlines, and documentation in one place, free to download. If you have a specific compliance question or an upcoming audit and want a second set of eyes, a Strategy Session or Workflow Strategy Session is built for exactly that. And if your board needs to understand grant risk at the governance level, that’s what the Board Alignment Session is for.