Understanding the Latest NIH Policy Changes and Why Compliance Matters
With the new administration, there has been a renewed focus on eliminating fraud, waste, and abuse in the U.S. government. Within the first few weeks of the Trump administration, we have already seen changes to invoicing procedures for federal grants, including increased auditing and additional sign-offs.
For example, our clients with NIH grants have experienced additional layers of approval for payment requests. Initially, these changes caused delays of about a week in processing payment submissions. However, as agencies have streamlined their processes, we have observed a reduction in delays, now typically adding only a couple of extra days to approvals.
With these additional approvals and scrutiny, it is critically important to have an accounting system that is fully compliant and capable of tracking all costs accurately.
NIH’s New Indirect Cost Rate Cap
On February 7, 2025, NIH announced a policy capping indirect cost rates at 15% for all new and existing grants, effective February 10, 2025. As of the date of this article, it is unclear whether this cap applies to small businesses with existing grants. However, NIH has the authority to impose a different rate under federal regulations.
On February 11, 2025, a Federal Judge temporarily blocked the implementation of this rate cap. As this works its way through the courts, here are a few takeaways:
Key Takeaways:
NIH has set a standard indirect cost rate of 15% for all grants, leveraging its authority under 45 C.F.R. 75.414(c)(1).
This cap is 50% higher than the 10% de minimis indirect cost rate established under 45 C.F.R. 75.414(f).
NIH justifies the increase by referencing private sector indirect cost rates and the 15% de minimis cost rate used for institutions of higher education (IHEs) and nonprofits under 2 C.F.R. 200.414(f).
The regulation explicitly states that NIH may deviate from the negotiated indirect cost rate for both new and existing grants issued to IHEs, raising concerns about whether this could extend to small businesses.
How This Compares to Other Agencies
Other federal agencies, such as USDA, have historically maintained a 10% de minimis rate, which is lower than NIH’s newly imposed cap. This discrepancy highlights the need for organizations to understand and adapt to agency-specific policies.
For small businesses with grant funding, these changes emphasize the importance of proactive financial planning. Organizations must evaluate how the new indirect cost cap affects their existing budgets and financial projections.
Why This Matters and How Abaci Accounting Can Help
Grant compliance is not just about meeting basic financial reporting requirements, it ensures that organizations remain eligible for funding, avoid costly penalties, and maintain transparency with federal agencies. Agencies such as NIH, NSF, DOE, and DOD impose strict financial tracking and reporting obligations. A lapse in compliance can result in withheld payments, grant suspension, or even legal repercussions.
The recent administrative shifts highlight the need for businesses and institutions receiving federal funding to proactively manage their financial records. Delays caused by additional approvals and oversight can impact cash flow, making it essential to have a structured accounting system in place.
Next Steps for Grant Recipients
Given these policy shifts, small businesses and research institutions should:
Assess the financial impact of the 15% indirect cost cap on their existing and upcoming grants.
Carefully monitor and manage cash flow to ensure continued operations, anticipate potential delays in funding disbursements, and adjust budgets accordingly.
Consult with financial and grant management experts to determine compliance strategies.
Ensure their accounting systems are equipped to track direct and indirect costs accurately.
Monitor further policy changes from the US Government and whether small businesses with existing grants will be affected.
At Abaci Accounting, we stay on top of policy changes and help clients adapt to new federal grant regulations. We specialize in government-compliant bookkeeping and accounting solutions, ensuring that all grant-related expenses are accurately tracked and reported. Our expertise in SBIR/STTR accounting, along with our understanding of agency-specific requirements, allows us to assist businesses in maintaining compliance while maximizing funding opportunities. We help clients:
Implement accounting systems that align with federal grant requirements
Prepare and submit compliant financial reports
Manage indirect cost rates and allowable expenses
Navigate agency-specific regulations and policy changes
Please contact us for more information.