The Ground Just Shifted
On October 1, 2024, 2 CFR part 200 federal guidelines governing indirect costs changed. The de minimis rate increased from 10 percent to 15 percent, the subrecipient threshold doubled from 25,000 dollars to 50,000 dollars, and new requirements for transparency and documentation went into effect. At first glance, these changes may feel like a relief. They provide additional breathing room for agencies that have struggled to keep up with administrative costs. But the reality is more complicated. These revisions were followed by an Executive Order on August 7, 2025, specific to grants, which means they could be reversed as quickly as they were enacted.
Agencies that treat the de minimis increase as a solution are missing the bigger picture. In today’s compliance environment, transparency, not percentages, is the true measure of financial health.
The Problem with the De Minimis Mindset
The de minimis option was introduced as a temporary tool for organizations without a negotiated indirect cost rate agreement (NICRA). It was never intended to be a permanent solution. While a 15 percent rate sounds attractive, it doesn’t give you the complete picture of what it costs to support a particular grant. Without understanding the true service cost, your agency puts itself at risk. Considering that indirect cost is a zero-sum game, it is critical to understand the full cost of ALL programs you support.
The difference is not just arithmetic. It is the gap between sustainability and subsidy.
More importantly, continued reliance on the de minimis rate sends the wrong message to auditors and funders. It signals that an agency may not have the systems in place to understand or document its true costs. In an environment where every federal dollar is closely monitored, that appearance can create real risk.
Transparency Is Now a Compliance Expectation
The Executive Order revisions do more than adjust rates and thresholds. They reinforce the requirement that agencies document, justify, and defend the way indirect costs are allocated. Flat rates are no longer enough.
Auditors are being instructed to move past simple percentages and look for evidence that agencies are managing their resources responsibly. The key questions are straightforward:
- Can you demonstrate how your indirect costs are allocated?
- Do your cost allocation methods align with 2 CFR Part 200?
- Are your central services, such as IT, HR, and Finance, distributed fairly across programs?
If an agency cannot answer yes to these questions, it is at risk of findings, disallowed costs, and potentially the loss of future funding. The new guidelines create opportunity, but they also heighten accountability.
Hidden Subsidies: The Silent Drain
For most organizations, indirect costs account for between 25 and 35 percent of total program costs. These include central functions like human resources, technology support, payroll, and facilities. Yet in practice, these costs are often absorbed into agency budgets rather than recovered through grants. That means agencies are quietly subsidizing millions of dollars in state and federal programs without realizing it.
The Executive Order changes do not eliminate that subsidy. They make the consequences of ignoring it even more serious. Agencies that fail to measure and report their true costs will continue to absorb them. At the same time, they will now face increased scrutiny from auditors and funders. It is imperative now more than ever that agencies find ways not only to understand what the indirect cost is but also how indirect costs can be identified directly to reduce your indirect cost rate, remain competitive, and avoid subsidizing indirect costs that truly belong to the program at hand. The silent drain becomes a public vulnerability.
What Agencies Must Do Now
Agencies that want to remain sustainable cannot stop at de minimis. They need to take immediate steps to build systems of transparency and accountability. Three actions are essential:
- Conduct a True-Cost Analysis
A true-cost analysis brings both direct and indirect expenses into the picture. It highlights hidden subsidies and uncovers areas where programs rely on central services without accounting for them. This creates a baseline that leaders can use to make decisions. - Refresh or Build a Cost Allocation Plan
A cost allocation plan distributes central costs fairly across programs and departments. It makes the link between services provided and expenses incurred explicit. This is where agencies can begin to identify indirect costs that can be classified as direct. Without a plan, agencies are left with estimates or outdated assumptions that distort budgets. - Develop or Update an Indirect Cost Rate Proposal (ICRP)
An ICRP converts actual costs into a defensible rate that can be applied to grants and contracts. Unlike the de minimis rate, it reflects reality and can be defended in an audit. Agencies with current, well-documented ICRPs are better positioned to recover costs and meet compliance standards. The goal will be to shift as many indirect costs to direct where applicable, reducing the indirect cost pool and lowering the rate while still capturing ALL indirect costs associated with a grant, direct or indirect.
These steps are not just bureaucratic exercises. They create the evidence base that funders and auditors are demanding. They also put agencies in a stronger position to manage resources and make informed budget decisions.
The Bigger Picture
Executive Orders are inherently temporary. They can be rescinded, revised, or replaced with the stroke of a pen. The 2024 changes may create new opportunities, but they are not a guarantee of stability. Agencies that rely on de minimis are betting their financial health on a short-term policy tool. Agencies that invest in transparency are building resilience that will outlast any single administration.
Transparency also has strategic value. Agencies that can demonstrate a clear understanding of their costs are more credible partners in competitive grant processes. They are also better able to evaluate whether a new grant or program is financially sustainable before accepting it.
Final Thought
Federal funding is about more than compliance. It is about sustainability, stewardship, and trust. The agencies that thrive in the coming years will not accept the de minimis increase as sufficient. They will be the ones who know their costs, document them, and defend them with confidence.
Now is the time to act. This Executive Order allows for funding to be cut OFF WITHOUT warning, so while the funding is there, be sure to capture 100% of your cost NOW and don’t wait. You can always re-allocate the indirect funds back to the program if you wish, but at least you will have protected the ACTUAL funds you expended on the program.
The message is simple. Do not stop at de minimis. Transparency pays. Contact Aptemiz to strengthen your compliance and recover 100% of your costs.
