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2 CFR Part 200 Subpart F – What Happens During a Uniform Guidance Audit?

July 11, 2023 / Ed Jameson / Blog Posts
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You’ve read our first blog, and you’ve determined that under 2 CFR Part 200 Subpart F you do, indeed, require a Uniform Guidance Audit or UGA. Now what?

This blog, the 2nd in our UGA series, answers that question in detail.

2 CFR Part 200 Subpart F Requires You to Hire Your Auditor

Yes, that’s right. YOU are responsible for finding a CPA who specializes in government grant accounting, the Federal Acquisition Regulations and your funding agency’s supplemental regulations. The government will not allow the audit to be conducted by a CPA who doesn’t know their stuff.  In fact, your auditor’s work papers are subject to inspection by the government to make sure that the audit was performed correctly and they can be thrown out if they are determined to be inadequate.

To make matters worse, you have to pay for this highly specialized CPA and they won’t be working for you; they’ll be working for the government.

We, at Jameson & Company, have performed hundreds, if not thousands of these UGA (fka OMB-A-133) audits.  However, as you can imagine, being subject matter experts made us very good at finding problems, which caused headaches for our clients (who all thought they were clean).  So, we made the decision to stop offering audit services and only work as our client’s internal resource – making sure that everything is clean and getting them through the audit unscathed. Far more rewarding for us and our clients.


After you’ve found the right CPA firm (or use us to hire them) and the engagement letter is squared away, your auditor will develop a plan for what he or she will test during the audit. In this planning phase, you’ll be asked a number of questions.

The auditor will want to know about your accounting system.

  • What accounting system do you have in place?
  • How does your accounting system work?
  • How do you account for costs from your grant?

The auditor will want to know about company culture.

  • How does your company work from day-to-day?
  • Do you have any written accounting policies and procedures?
  • Do you have an employee manual?
  • Who’s responsible for the accounting transactions?

These questions help the auditor determine how much risk they assess to the overall project and how much they have to test.

Know that your auditor will also ask you a number of fraud-related questions. Don’t be offended; you are not being accused of doing anything wrong. This is a requirement on any audit and your answers determine whether there is potential for fraud.


Basically, your auditor needs to confirm to the government and your funding agency that you are spending your grant money as you proposed and that you have adequate internal controls in place.

First, they will check what you’ve spent.

Assume that they will ask—and you will have to demonstrate—the following:

  • You are tracking the costs you spend by project
  • Your accounting records clearly allocate costs by award
  • You can produce a Profit & Loss statement by job showing totals for each project by category

Expect a thorough examination of direct costs charged to each project by category.

Odds are, your direct categories will be very much like the following:

  • direct labor
  • direct consulting
  • direct subcontractors
  • direct travel
  • direct equipment
  • other direct costs

Your auditor will make several selections from each category, and they’ll have specific items or proof that they need to see for each.

Direct Materials

What they examine: For direct materials and other similar items, your auditor will examine invoices.

Why: They want to see how the cost relates to your award.

What they want to know: Who authorized the purchase; who authorized its payment; how was it coded in your accounting records; do you have cancelled checks to verify that the costs were paid for in a timely manner and with proper approvals.

Direct Labor

What they examine: You auditor will look at your labor distributions or how you allocated the amounts you paid the employees to your award.

Why: They want to make sure these are truly direct expenses and that you charged the government correctly

What they want to see: They will look at your time sheet and examine your personnel files for approved salaries and hourly wage rates.

Direct Consultants

What they examine: The auditor wants to see a signed consulting agreement

Why: They want to know that this was a very detailed, well thought out agreement and see how it relates to the award.

What they want to see:

  • A signed consulting agreement that includes project detail, scope of work, hourly rate to be charged and how this work relates to the award.
  • Invoices that reflect dates worked, details about the work performed, and the number of hours worked at the consulting rate in the contract.

What’s not okay: A generic entry with no detail, such as “Consulting retainer: $5k”

Direct Subcontractors

What they examine:  The auditor wants to see a signed subcontractor agreement.

Why: Again, they want to know that this was a very detailed, well thought out agreement and see how it relates to the award.

What they want to see: 

  • A subcontractor agreement that includes amount to be paid, term of engagement, payment terms, and reference to the actual grant number.
  • IMPORTANT You must also detail the FAR provisions that flow from your company to the direct subcontractor, such as allowable costs and the need for a UGA.
  • Invoices from the direct subcontractor that agree with overall agreement


Direct Travel

What they examine: Your auditor will expect to see all supporting invoices for a direct travel expense.

Why: They want to make sure that your trip directly relates to your grant and that all your expenses are allowable.

What they want to see: Supporting and dated invoices for hotel, restaurants, and conference costs. Note: They will compare the timing of the direct travel costs with that of direct labor to make sure time frames agree. They will compare the costs to published per diem rates and look for unallowable items, such as alcohol or seating upgrades

Direct Equipment

What they examine: Invoices for the equipment, a picture of the item or the item itself.

Why: Direct equipment, such as a special microscope, that is purchased with government funds belongs to the government and could be asked to be returned. They need to accurately assess value, condition, and reusability.

What they want to see: An inventory tag and a place on an inventory list

Other Direct Costs

What they examine: “Other direct expenses” is a pretty broad category; it could be cloud costs, publication costs, or so on. You auditor will want to know exactly what this expense is and why you’ve incurred it.

Why: Your auditor will want to confirm that this expense directly relates to your award and is in agreement with your original award proposals.

What they want to see: This is very situational. It could be invoices, procurement schedules, contracts and so on.


Worried about surviving a UGA? Speak With A Government Funding Award Expert!
Call Now: 781-862-5170 – or – Schedule A Call

This is the second of our seven-part series about the Uniform Guidance Audit:

  1.  Is Your Grant Subject To a Uniform Guidance Audit?
  2. What Happens During a Uniform Guidance Audit?
  3. How a UGA Auditor Tests Your Company’s Internal Controls
  4. How To Avoid Uniform Guidance Audit Findings on SF-425 Reporting
  5. How To Avoid UGA Findings: Direct Subcontractors
  6. How To Avoid UGA Findings: Direct Consultants
  7. What Happens To NIH and DOE Grant Audit Findings?

If you want to go deeper into the Uniform Guidance Audit, check out our webinar.

Ed Jameson, CPA, Managing Partner

I’ve been in practice for over 40 years helping our small business clients procure, manage, and survive audits on more than $6 billion in federal government contract and grant funding. We’ve been featured presenters and panel moderators at Tech Connect’s National SBIR/STTR conferences since 2010, and I’ve presented at the DOD’s Mentor Protégé Summit and present regularly for several state and local organizations.