What Is the Uniform Guidance Compliance Supplement?

The Uniform Guidance Compliance Supplement is a document issued annually by the Office of Management and Budget (OMB). It is used by auditors conducting single audits of entities that expend federal funds.

Navigating the Structure of the Compliance Supplement

The Compliance Supplement is organized into several parts, each serving a distinct purpose in the audit process.

Part 1: Background, Purpose, and Applicability

This section explains the Supplement’s purpose and applicability. It outlines the legal basis for the single audit, required for non-federal entities expending $750,000 or more in federal awards annually. This threshold increases to $1 million for fiscal years ending on or after September 30, 2025.

Part 2: Matrix of Compliance Requirements

Part 2 features a matrix cross-referencing federal programs with the 12 compliance requirements from Part 3. This allows auditors to quickly identify which requirements are subject to audit for a specific program.

Part 3: Compliance Requirements

This section describes the 12 types of compliance requirements applicable to federal programs. It defines each requirement and its audit objectives, establishing the standards for measuring compliance.

Part 4: Agency Program Requirements

Organized by federal agency and Assistance Listing Number, this part details unique compliance rules or modifications to the general requirements. Auditors use this section to understand program-specific nuances.

Part 5: Clusters of Programs

Part 5 addresses program clusters, which are related programs treated as a single program for audit purposes. This section provides guidance for groupings like the Student Financial Assistance or Research and Development clusters.

Part 6: Internal Control

This section provides guidance on testing an entity’s internal controls over compliance with federal program requirements. It outlines the objectives of effective internal control for each compliance type.

Part 7: Guidance for Auditing Programs Not Included

Part 7 offers a process for auditors when a federal program is not listed in the Supplement. It provides a method for identifying the relevant compliance requirements to test.

Appendices

The appendices contain supplementary information, including changes from the prior year’s Supplement, a list of programs added or deleted, and other auditor resources.

Understanding the Core Compliance Requirements

The Supplement is built around 12 standard compliance requirements. For any given program, the OMB selects up to six of these requirements for audit, focusing on higher-risk areas. An auditor determines if an entity has complied with these selected requirements for its major federal programs.

• Activities Allowed or Unallowed: This ensures federal funds are used only for purposes authorized by the program. Auditors test whether the recipient’s activities are consistent with program objectives. For example, funds for tutoring cannot be used for playground equipment unless specifically allowed.
• Allowable Costs/Cost Principles: This governs the types of costs chargeable to a federal award, which must be necessary, reasonable, and allocable. Auditors examine expenditures for compliance with the cost principles in 2 CFR Part 200, Subpart E.
• Cash Management: This requirement is designed to minimize the time between an entity’s receipt and disbursement of federal funds. Auditors review bank statements and disbursement records to verify the entity is managing federal cash balances according to regulations.
• Eligibility: For programs providing benefits to individuals or groups, auditors must verify that eligibility determinations are correct. This involves testing the processes used to establish and re-verify that funds went only to eligible parties.
• Equipment and Real Property Management: When federal funds are used to buy equipment or real property, rules govern their use, management, and disposition. Auditors test if the entity maintains proper records, performs inventories, and follows federal requirements for disposal. The threshold for what is considered equipment is $10,000.
• Matching, Level of Effort, Earmarking: Some programs require a recipient to contribute its own funds (matching), maintain a service level (level of effort), or spend funds on specific activities (earmarking). Auditors test whether the entity has met these financial or programmatic requirements through analysis of financial and program data.
• Period of Performance: Federal awards are granted for a specific time frame, the period of performance. This requirement ensures funds are used only for costs incurred during this authorized period. Auditors review transaction dates to confirm expenditures fall within the approved timeframe.
• Procurement and Suspension and Debarment: A recipient using federal funds for goods or services must follow federal procurement standards designed for fair competition. Auditors also verify the entity has not contracted with parties suspended or debarred from receiving federal funds.
• Program Income: Program income is gross income earned by the recipient that is directly generated by the federal award. This requirement dictates how such income is treated, usually by reducing the award amount or financing the non-federal share. Auditors review revenue records to ensure program income is properly handled.
• Reporting: Recipients must submit various financial and performance reports to the federal awarding agency. This requirement ensures these reports are accurate, complete, and submitted on time. Auditors test the underlying data and processes used to prepare these reports.
• Subrecipient Monitoring: If a recipient passes funds to a subrecipient, it is responsible for monitoring that entity’s compliance. Auditors test whether the primary recipient has effective procedures to monitor its subrecipients’ activities and ensure funds are used appropriately.
• Special Tests and Provisions: This is a catch-all for compliance requirements unique to a specific program that do not fit other categories. These are detailed in Part 4 of the Supplement, and auditors must review program-specific guidance to identify and test them.

Guidance on Internal Control Over Compliance

Part 6 of the Supplement provides a framework for evaluating an entity’s internal controls. For each applicable compliance requirement, an auditor must also consider the internal controls the auditee has implemented.

Part 6 is structured to align with established internal control frameworks. While the Uniform Guidance does not mandate a specific one, it requires compliance with standards like those from the Committee of Sponsoring Organizations of the Treadway Commission (COSO) or the Government Accountability Office’s “Green Book.”

Part 6 gives auditors specific objectives and illustrative controls for each compliance type, which helps them plan and perform structured tests. For example, under “Cash Management,” a control might be the monthly reconciliation of federal cash drawdowns to expenditures. A strong system of internal control provides reasonable assurance that the entity can manage its federal awards in compliance with regulations, and the auditor’s evaluation of these controls is a component of the overall audit opinion.

Auditing Programs Not Included in the Supplement

When a program is not listed in the Supplement, auditors follow a process in Part 7 to identify the compliance requirements to test. First, they must carefully examine the grant agreement and its terms for any clauses that specify how funds must be managed or what reporting is required.

If the agreement lacks detail, the next step is to research the program’s governing regulations in the Code of Federal Regulations (CFR) or on the agency’s website. Finally, the auditor uses professional judgment to determine which of the 12 general compliance requirements from Part 3 would likely have a direct and material effect on the program.