Organizations may be subject to the Uniform Guidance requirements, also known as a Single Audit, if they expend more than the threshold federal awards in a year. The threshold is $750,000 for periods beginning before October 1, 2024, and  $1,000,000 for periods beginning on or after October 1, 2024.

In a Single Audit, the auditors will test compliance with the major federal program. Compliance testing is performed by determining direct and material compliance requirements, which is based on requirements by the grantors, federal agencies, and/or auditors’ professional judgment. See the matrix of compliance requirements here at Part 2.

Activities allowed and allowable costs in general are necessary and reasonable activities and costs used to carry out the program and are a frequently tested compliance requirement.

The basic premise for compliance with activities allowed and allowable costs is that the organization should have internal controls designed and implemented to ensure the terms of the grant are being met, and that the funds are only used for purposes set forth in the grant.

Internal controls should be designed to meet the requirements of 2 CFR Section 200.303. This means the organization should generally have the following for allowable activities and costs:

• Policies and procedures written on allowable activities and costs
• Implemented practices which follow these policies and procedures
  • Approval of payment of vendors or payroll by a grant administrator or another member familiar with the activities/costs allowable to the program.
  • Utilization of chart of accounts to ensure grant costs include only allowable expenditures
  • Review of grant budget to actuals on an ongoing basis
  • Proper approval of allocations for allowability, adherence to cost principles, accuracy, and completeness
  • Ensure journal entries posted to transfer costs from one grant to another are approved by a knowledgeable individual for appropriateness.

The above list is not all inclusive. See Part 6 of the Compliance Supplement for additional examples.

The Role of a Policies and Procedures Handbook

To comply with this requirement, an organization should maintain a handbook of policies and procedures. Overall  documentation should indicate:

1. The objective of the task
2. Who is responsible for performing the task
3. What task they should perform
4. How often the task is performed
5. How the task is documented

As an example, the handbook may state that the program director reviews invoices to indicate approval invoices for financial information, compliance requirements, or both. The  program director should be knowledgeable with activities allowed and allowable costs through grant trainings, and other information provided by the grantor, while maintaining the ability to review the coding of the expenditure. The program director should indicate approvals per the organization’s written policies, such as handwritten initials or through bill payment software user permissions.

Compliance with activities allowed and allowable costs is a pivotal requirement for many organizations carrying out federal grants. Feel free to reach out if you have any questions.

Interested in more Single Audit resources? Download our Post-Grant Award Checklist and Single Audit FAQs guide.  Sign up for our free Basics of Nonprofit Grant Management webinar that will be taking place on March 19th, 2025.