The Office of Management and Budget (OMB) recently released the draft of the 2025 Compliance Supplement, an essential resource for auditors and organizations receiving federal funds. The draft highlights several important changes that nonprofits should prepare for now. These updates are designed to align with the 2024 revisions to the Uniform Guidance (UG), simplify some processes, and strengthen accountability. For nonprofits, the impact ranges from reduced audit burdens for smaller organizations to heightened oversight and reporting responsibilities for larger ones.
What’s New in the 2025 OMB Supplement?
1. Dual Framework for Compliance Requirements
Federal awards are now divided into two categories: those governed by the pre-2024 UG and those under the revised UG (effective October 1, 2024) and are summarized in Part 3.1 and Part 3.2, respectively. Part 3 of the draft supplement provides instructions on when to apply each appropriately. Other key compliance requirements, including Allowable Costs, Equipment & Real Property Management, Procurement, and Reporting, have been updated for the newer UG.
2. Program & Cluster Changes
Several new programs have been added. Major revisions have been made to HUD housing, education and health programs. Some programs, particularly COVID-19 related programs, have been phased out or their higher risk designation have been removed. Some changes in terminology have been made, in particular “non-federal entity” was changed to “recipient and subrecipient” to emphasize accountability.
3. Audit Threshold Raised
The Single Audit threshold will increase from $750,000 to $1,000,000 in federal awards for fiscal years beginning October 1, 2024, easing the burden for many smaller nonprofits. Notably, although the threshold change becomes effective for fiscal years beginning on or after October 1, 2024, the new audit threshold (and related changes to the Type A program threshold) per Appendix VII of the supplement cannot be applied until audits for entities with fiscal years ending September 30, 2025, or later. In summary, entities with fiscal years ending June 30, 2025 through September 29, 2025 will follow the 2025 Compliance Supplement, but would not be allowed to use the increased threshold until the following year.
4. Appendices and Risk Designations
Updates include changes to high-risk program designations, audit contacts, and program listings. These revisions may affect which programs are selected for major program testing in audits. The draft supplement identified Abandoned Mine Land Reclamation (Assistance Listing 15.252) and Medicaid Cluster (Assistance Listings 93.778, 93.777, and 93.775) as the only two high risk programs.
5. Delayed Issuance
Entities should be aware that single audits for fiscal years beginning after June 30, 2024 should not be submitted until the final version of the 2025 Compliance Supplement is released. For entities submitting to the Federal Audit Clearinghouse prior to the release of the final supplement, resubmission could be required.
Implications for Nonprofit Organizations
For nonprofits, the draft Supplement is both an opportunity and a challenge. Organizations managing multiple grants will need to track which version of UG applies to each award, potentially complicating compliance processes. Smaller nonprofits may benefit from the raised audit threshold, but larger organizations should prepare for increased oversight and changes in audit focus.
Nonprofits should review and update internal controls and policies related to procurement, allowable costs, and equipment management to coincide with UG updates. Early engagement with auditors and proactive staff training will help organizations navigate this transition year smoothly.
Bottom line: The 2025 OMB Supplement reflects a shift toward streamlined reporting and reduced burden for smaller entities, but it also introduces new complexities. Nonprofits that act now to strengthen compliance systems and align policies with the draft guidance will be best positioned for success once the final Supplement is released.