OMB Proposes Significant Changes to Uniform Guidance

Not-for-profits have spent the last two years adapting to the 2024 Uniform Guidance changes. Before many organizations have fully settled into those requirements, another round of revisions may be on the horizon.

On May 29, 2026, the Office of Management and Budget (OMB) published a proposed rule in the Federal Register that would make sweeping changes to the Uniform Guidance governing federal grants and cooperative agreements (2 CFR Part 200). These proposals carry significant implications for nonprofit organizations that receive federal funding and could affect everything from how reimbursements are received to how federal awards are terminated. While these changes are not yet final, they provide important insight into where federal oversight appears to be headed: greater documentation, increased transparency, and heightened accountability throughout the award lifecycle.

Organizations that receive federal funding should be paying attention now — not because immediate action is required, but because intentional and thoughtful planning can reduce surprises later.

The proposed effective date is October 1, 2026.

Most Critical Proposed Changes

1. Expanded Award Termination Authority (§ 200.340)

For many organizations, this may be the proposal with the most immediate strategic implications. While existing rules already allow termination for cause or noncompliance, the proposal would permit the federal government to terminate any discretionary award for convenience, based solely on agency policy priorities, without a finding of wrongdoing. For not-for-profit leaders, the question becomes less about compliance and more about resilience: if an award ended unexpectedly, what would that mean for the mission, the people served, and the organization’s financial stability?

2. “Defend the Spend” — New Payment Justification Requirements (§ 200.305)

All payment (drawdown) requests would be required to include a description of costs covered and a justification for the spending. This is a significant operational change. Organizations can expect longer delays between submitting drawdown requests and receiving funds. Cash flow planning and internal controls over payment documentation will need to be strengthened before the rule takes effect.

3. Elimination of Fixed Amount Awards and Subawards (§§ 200.201, 200.333)

The proposal would eliminate fixed amount awards and fixed amount subawards entirely, converting all awards to a cost-reimbursement basis. This increases oversight and reporting obligations for both recipients and subrecipients. Organizations currently operating under fixed amount awards should begin assessing the administrative and financial impact of transitioning to cost-reimbursement structures.

4. Renewed Emphasis on Internal Controls and Organizational Oversight (§ 200.303)

The proposed revisions reinforce OMB’s expectation that recipients maintain effective internal controls throughout the award lifecycle. Recipients should expect increased scrutiny of:

• Organizational policies and procedures
• Fraud reporting practices
• Conflicts of interest disclosures
• Subrecipient monitoring

Organizations may wish to use this period to assess whether existing policies, procedures, and monitoring practices are not only documented, but operating as intended.

5. Expanded Restrictions on Allowable Activities (§ 200.300)

The proposal expands restrictions on the use of federal funds, explicitly making certain activities related to anti-discrimination laws, DEI-related practices, and other areas unallowable costs. Organizations must carefully review their programs and activities against these proposed restrictions to assess exposure.

6. Reduced Role of Peer Review in Funding Decisions (§ 200.205)

Senior-level political appointees would have final approval authority over funding decisions, replacing or overriding the traditional peer review process. This ties award decisions more directly to administration policy priorities, adding a new layer of unpredictability in the competitive grant award process.

7. Increased Subaward Reporting and Transparency (§§ 200.329–200.332)

Pass-through entities will face stricter obligations to report subawards on SAM.gov, including transfers of funds to affiliates, subsidiaries, or other related organizations. Federal agencies will also be required to more actively monitor whether their recipients are fulfilling these reporting obligations.

What Is Not Changing (for Now)

Amid several noteworthy proposals, it is equally important to understand what OMB has chosen not to address in this rule making. OMB explicitly stated it is not proposing changes to the indirect cost rate negotiation system at this time, noting ongoing legislative constraints from FY 2026 appropriations language. OMB may issue a separate request for information on that topic in the future. Comments on the indirect cost rate system submitted in response to this proposed rule will not be considered.

Additionally, OMB and HHS are currently analyzing the Single Audit process under the Financial Management Risk Reduction Act. No changes to Single Audit thresholds or requirements are proposed in this rulemaking, though future engagement is anticipated before any additional changes are made.

Recommended Actions for Not-for-Profits

While these revisions remain proposal and may change before coming final, they provide an opportunity for organizations to take a fresh look at their readiness. The organizations best positioned to adapt will be those that start planning now, before these scenarios become reality. Consider the following practical steps to help prepare for what may lie ahead:

• Review the Proposed Rule: The Federal Register notice includes the full text, and your organization’s experience with these requirements is directly relevant to OMB’s rulemaking process. Focus on the proposals that touch your funding sources, reimbursement processes, and subrecipient relationships.
• Engage in Scenario Planning with Your Board: If a major federal award ended unexpectedly or reimbursement slowed significantly, what would that mean for your programs, staffing, and those you serve? Consider modeling what a mid-award termination would look like, so you can have those conversations now to create options later.
• Stress-Test Your Cash Flow: Even healthy organizations can struggle if reimbursements are delayed. Consider how much flexibility exists in your current forecasts and whether reserves, financing arrangements, or spending patterns would support a temporary delay in funding.
• Evaluate Federal Funding Dependency: Consider reducing dependence on federal funding by expanding foundation grants, individual giving, or earned revenue. This does not mean abandoning government grants but instead increasing revenue diversification to help strengthen long-term sustainability.
• Start Documenting with Tomorrow in Mind: The proposed changes point toward greater expectations around transparency and justification of spending. Building stronger habits now can ease future compliance burdens later.

Focus on What Counts: Your Mission

Navigating 2026’s complex regulatory landscape requires expertise and proactive preparation. Our Not-for-Profit Industry Practice helps organizations strengthen financial management, enhance governance frameworks, navigate evolving Uniform Guidance compliance requirements, and build robust internal controls infrastructure. We collaborate with organizations to address these challenges strategically, helping leaders identify practical solutions tailored to their unique circumstances so their teams can spend less time reacting to change and more time focused on what counts: their mission. For more information, reach out to John Eusanio, Brittany Jones, or your Citrin Cooperman professional.