2 CFR Part 200 Compliance for K-12 Schools
A Practical Guide for Public, Charter, and Private Schools Receiving Federal Education Funds
Federal education dollars come with federal rules. Most school districts receive Title I, IDEA, Carl Perkins, or other formula and competitive grants without a clear picture of what the Uniform Guidance requires them to do on the administrative side. That gap shows up in audits, in disallowed costs, and in awards that get threatened or terminated not because of program failures but because of paperwork.
This section of the 2 CFR Part 200 compliance guide is written for district administrators, business managers, Title I coordinators, and anyone else responsible for managing federal education funds in a K-12 setting.
Which Schools Are Covered
Public school districts receiving federal formula grants under the Elementary and Secondary Education Act, the Individuals with Disabilities Education Act, the Rural Education Achievement Program, Carl Perkins, McKinney-Vento, or any federal competitive grant are subject to 2 CFR Part 200 in full.
Charter schools are treated as local education agencies for most compliance purposes and carry the same obligations as traditional public districts.
Private schools receiving federal funds as subrecipients of state-administered awards face compliance obligations at the subrecipient level. Those obligations flow down from the state education agency through the subaward, and they are not lighter simply because the private school is receiving a pass-through rather than a direct award.
One narrow exemption is worth noting. Federal awards to local education agencies under the Impact Aid program (20 U.S.C. 7702-7703b) are exempt from the administrative and cost requirements in Subparts C, D, and E of Part 200. That exemption covers Impact Aid direct payments only. It does not cover Title I, IDEA, SRSA, REAP, or any other federal education program.
Financial Management Is a Written Systems Requirement
Section 200.302 requires every recipient to maintain a financial management system with specific, documented capabilities. Your accounting system must be able to do all of the following for each individual federal award:
Identify the award by Assistance Listings title and number, Federal Award Identification Number, fiscal year, and awarding agency. Produce accurate financial reports showing expenditures against the approved budget. Maintain records that identify the amount, source, and purpose of federal expenditures with source documentation supporting every transaction. Compare actual expenditures to the approved budget on an ongoing basis. Include written procedures for determining whether costs are allowable under the award.
For school districts managing multiple federal programs simultaneously, this means your business office cannot pool Title I and Title II and IDEA expenditures into a single undifferentiated cost center. Each award must be separately trackable and reportable. If your accounting system cannot produce a budget-versus-actual report for each individual federal award on demand, you have a financial management deficiency that an auditor will find.
The written procedures requirement deserves particular attention. An auditor asking for your written procedures for determining allowable costs is not asking whether your staff knows the rules. The auditor is asking for a document. The document does not need to be elaborate. It needs to exist, be current, and reflect how your district actually makes cost allowability decisions.
Internal Controls Are an Administrative Requirement, Not an IT Function
Section 200.303 requires recipients to establish, document, and maintain effective internal controls over each federal award. The standard references two established frameworks: the Government Accountability Office's Green Book and the COSO Internal Control-Integrated Framework. Your controls do not need to replicate a Fortune 500 finance department, but they do need to exist and be documented.
For a school district, internal controls over federal awards include segregation of duties in the expenditure approval process, independent reconciliation of federal expenditures against award budgets, documented authorization levels for purchasing decisions, monitoring procedures that catch errors or unauthorized transactions, and cybersecurity measures protecting student data and financial records.
Section 200.303(e) specifically requires reasonable cybersecurity measures to safeguard personally identifiable information and other sensitive data. A cybersecurity incident does not by itself create a compliance violation. What creates a compliance violation is the absence of reasonable controls. If a breach occurs and an audit reveals that the district had no documented cybersecurity procedures, no access controls, and no incident response plan, the finding is not the breach. The finding is the absence of controls that should have been in place before the breach occurred.
Many small and rural districts delegate federal program management to a single individual. That structure creates internal control weaknesses that auditors are trained to identify. If one person approves purchases, processes payments, and reconciles accounts for a federal award, you have a segregation of duties deficiency. Addressing it does not require hiring additional staff. It requires redesigning the process so that no single person can initiate, approve, and reconcile a transaction without a second review. In small districts, that second review is often a principal, a superintendent, or a board treasurer, depending on the dollar threshold.
Equipment Purchased with Federal Funds Has Conditions That Last for Years
Section 200.313 governs what happens to equipment purchased with federal award money, and its requirements apply as long as the federal government retains an interest in the asset, which does not end when the grant period ends.
Equipment must be used for the authorized program purpose for the duration of the project. When no longer needed for the original program, it may be used for other federally funded activities, provided that use does not interfere with the original purpose. It cannot be sold, pledged, or otherwise encumbered without federal agency approval while the award is active.
Your district must maintain a property record for each piece of federally funded equipment that includes: a description of the property, a serial number or other identification, the funding source including the Federal Award Identification Number, who holds title, the acquisition date, the purchase cost, the percentage of the purchase price paid with federal funds, the current location and condition, and any disposition information when the asset is eventually removed from service.
A physical inventory must be conducted and reconciled against these property records at least once every two years.
When equipment is no longer needed for any federal program, the disposition rules in Section 200.313(e) apply. Equipment with a current fair market value at or below $10,000 per unit may be retained, sold, or discarded with no further obligation to the federal government. Equipment worth more than $10,000 per unit requires the district to calculate the federal agency's proportional share of any sale proceeds, based on the percentage of the original purchase paid with federal funds multiplied by the current fair market value or sale price. That share must be returned to the federal agency.
A district that purchased a $40,000 server with Title IV-A funds cannot simply discard it or sell it at a surplus auction and keep the proceeds without first determining whether it still carries federal interest and what the federal agency's share of the proceeds would be.
Procurement with Federal Funds Is Competitive by Regulation
Sections 200.318 through 200.327 establish procurement standards that apply to all purchases made with federal award funds. These standards are not optional and they override local purchasing habits, vendor preferences, and longstanding informal arrangements.
The regulation organizes procurement by dollar threshold. Micro-purchases, currently transactions at or below $10,000, may be awarded without competitive quotations if the price is considered reasonable and that conclusion is documented. Micro-purchases must be distributed equitably among qualified suppliers over time. Concentrating purchases with the same vendor repeatedly will attract auditor scrutiny.
Transactions above the micro-purchase threshold but below the simplified acquisition threshold (currently $250,000) require price or rate quotations from an adequate number of qualified sources. The regulation does not specify a minimum number of quotes, but three is the conventional standard and the one auditors typically expect to see documented.
Transactions above the simplified acquisition threshold require formal competitive procurement: either sealed bidding, which is preferred for construction projects, or a competitive proposal process through a written request for proposals with public notice.
Sole source procurement, called noncompetitive procurement in Part 200, is allowed only in four circumstances:
- The transaction does not exceed the micro-purchase threshold.
- Only one source can fulfill the need.
- A genuine public emergency does not permit competitive solicitation.
- The federal agency approves a noncompetitive approach in writing.
A vendor's past performance, a staff member's familiarity with a particular vendor, or the administrative inconvenience of running a competitive process are not permissible sole source justifications.
All procurement procedures must be written and documented. Conflicts of interest in the procurement process are prohibited. An employee, officer, or board member with a financial interest in a vendor being considered for a contract cannot participate in the selection, award, or administration of that contract.
When procuring under federal awards, Section 200.321 requires the district to actively consider small businesses, minority businesses, women-owned businesses, veteran-owned businesses, and firms in labor surplus areas by including them on solicitation lists and soliciting them when they are eligible as potential sources.
Record Retention Runs Three Years from Final Report Submission
Section 200.334 requires all records related to a federal award to be retained for three years from the date the final financial report is submitted. Financial records, supporting documentation, statistical records, property records, and all other records pertaining to the award must be retained for the full period.
If litigation, a claim, or an audit is initiated before the three-year period expires, records must be retained until the matter is fully resolved, regardless of how long that takes.
For property and equipment, the three-year retention clock runs from the date of final disposition of the asset, not from the final financial report. A computer purchased with Title I funds in 2022 and disposed of in 2030 requires records to be retained until 2033.
For indirect cost rate computations and proposals, the retention period runs from either the submission date or the end of the fiscal year covered by the computation, depending on whether the proposal was submitted to a federal agency.
Records may be electronic. Digital copies of original paper documents are acceptable when maintained under quality control procedures that prevent alteration and ensure continued readability. Federal agencies, pass-through entities, and auditors have the right to access all award records at any time during the retention period.
Allowable Costs Are Determined by Criteria, Not by Category
Section 200.403 establishes the criteria that every expenditure charged to a federal award must meet. A cost is allowable only if it satisfies all of the following conditions: it is necessary and reasonable for the program, it conforms to any limitations in Part 200 or the award terms, it is consistent with policies applied uniformly to federally and non-federally funded activities, it is treated consistently across all cost categories, it is determined in accordance with generally accepted accounting principles, it has not been charged to another federal program in the same or prior period, and it is adequately documented.
The consistency requirement catches many districts off guard. If your district treats a particular type of cost as indirect for general fund purposes but charges it as a direct cost to a federal award, that inconsistency is a compliance problem. The treatment of costs must be uniform regardless of which fund they are charged to.
Section 200.404 defines a reasonable cost as one that does not exceed what a prudent person would incur under the prevailing circumstances. The test is objective. Above-market vendor rates, purchases with no clear connection to the federal program, or costs incurred after the period of performance ended are unreasonable regardless of the intent behind them.
The De Minimis Indirect Cost Rate Is Available to Districts Without a Negotiated Rate
Many small and rural districts do not have a negotiated indirect cost rate with a federal cognizant agency. Section 200.414(f) allows any recipient without a current negotiated rate to elect a de minimis indirect cost rate of up to 15 percent of Modified Total Direct Costs. The district sets its own rate up to that ceiling. The de minimis rate requires no documentation to justify, can be used indefinitely, and once elected must be applied consistently across all federal awards until the district chooses to negotiate a formal rate.
Modified Total Direct Costs includes salaries, wages, fringe benefits, materials, supplies, services, travel, and up to the first $50,000 of each subaward. It excludes equipment, capital expenditures, rental costs for facilities, tuition remission, the portion of each subaward exceeding $50,000, and participant support costs.
If your district has a negotiated indirect cost rate, federal agencies are required to accept it. No agency may require your district to use a lower rate unless a federal statute specifically requires it.
The Single Audit Threshold Is $1 Million in Federal Expenditures
Section 200.501 requires any non-federal entity that expends $1 million or more in federal awards during its fiscal year to have a Single Audit conducted for that year. Districts that expend less than $1 million are exempt from the formal audit requirement for that year, though records must remain available for review.
Many rural districts approach or cross the $1 million threshold without tracking it carefully. Title I alone frequently exceeds $1 million in mid-size rural districts once special education set-asides, school improvement funds, and other federal add-ons are counted. When a district is approaching the threshold, the time to consult with your auditor is before the fiscal year closes, not after.
The Single Audit is not an ordinary financial audit. It includes compliance testing of major federal programs, internal control reviews, and a formal findings process. See the audit section of this guide for a full explanation of what the Single Audit covers and what findings mean for your district.
Work With The Rural Impact Group
Compliance under 2 CFR Part 200 is manageable when the right systems and procedures are in place. It becomes expensive and disruptive when those systems are built in response to an audit finding rather than in advance of one.
The Rural Impact Group provides external compliance officer services, federal program compliance reviews, procurement procedure development, and ongoing advisory support to K-12 organizations across the country. If this guide identified gaps in your district's current practices, a Rural Impact Diagnostic is the right starting point.
If your district needs to establish or maintain a SAM.gov registration, we provide free support for that process.
This guide reflects the current text of 2 CFR Part 200 as of May 29, 2026. It is informational in nature and does not constitute legal advice. Organizations should consult qualified compliance professionals when making compliance determinations for specific awards.