Prior Approval on Federal Grants: Which Budget Changes Need a Yes First

The short version

• Prior approval for federal grants means written approval obtained in advance from an authorized official of the agency or pass-through entity (2 CFR 200.1).
• 2 CFR 200.308(f) lists ten changes that always need prior written approval, including a change in scope, a change in named key personnel, moving participant support costs, unapproved subawards, a change in cost share, and most no-cost extensions.
• The 10 percent rule is optional for the agency. It may restrict transfers among direct cost categories when the federal share exceeds the simplified acquisition threshold ($350,000 in FAR 2.101 today) and cumulative transfers exceed or are expected to exceed 10 percent of the total approved budget, cost share included (200.308(i)).
• Agencies should answer a budget revision request within 30 days (200.308(d)). No-cost extension requests should go in at least 10 calendar days before the period of performance ends (200.308(f)(10)).
• Costs that needed approval and never got it can be disallowed, and disallowed payments must be refunded with interest (200.410).

Why prior approval goes wrong

The usual failure is quiet. A program director swaps a named project lead, the bookkeeper recodes contractor invoices to "subawards", and nobody writes to the program officer because the award total did not change. Then the auditor compares the approved budget to the GL and asks for the approval letter.

Section 200.308(b) puts the burden on the recipient: report deviations from the approved budget, scope, or objectives under 200.329, and request prior approvals under 200.308. The approved budget is the one in the award, federal share only or federal and non-federal together (200.308(a)). That is your baseline, not the board-approved operating budget.

The ten changes that always need prior approval (2 CFR 200.308(f))

These ten cannot be waived by the agency under 200.308(g), which carves them out of its waiver authority. If the award is silent, assume they apply.

1. A change in the scope or objective of the project, even with no budget change attached.
2. A change in key personnel, employees or contractors, identified by name or position in the award.
3. The approved project director or principal investigator disengaging for more than three months, or cutting time and effort on the award by 25 percent over the period of performance.
4. Including costs that require prior approval under Subpart E, unless the agency waived it.
5. Transferring funds budgeted for participant support costs to other categories.
6. Subaward activities not proposed in the application and approved in the award. A change of subrecipient needs approval only if the award terms say so, and procurement of goods and services is not a subaward.
7. Changes in the total approved cost sharing amount.
8. Needing additional federal funds to finish the project.
9. Moving funds between construction and non-construction work.
10. A no-cost extension of the period of performance, other than a one-time extension the agency authorized under 200.308(g)(2).

Item 1 is the one we see underestimated. A scope change needs approval "even if there is no associated budget revision", so a program that quietly drops a service site is out of compliance with a perfectly balanced budget.

Item 5 catches people. Participant support costs are defined in 200.1 as direct costs for participants, such as stipends, travel allowances, registration fees, and per diem, and 200.456 requires their classification to be written into policy and applied consistently across federal awards. The rule restricts moving money out of that line, whatever the amount.

The Subpart E cost items that also need approval

Item 4 points to the cost principles. Section 200.407 lists the sections where prior written approval is specifically tied to allowability, among them cost sharing (200.306), program income (200.307), fixed amount subawards (200.333), equipment and other capital expenditures (200.439), fund raising and investment management costs (200.442), pre-award costs (200.458), rearrangement and reconversion costs (200.462), and travel costs (200.475). The list has sixteen entries. Read the specific section before you decide a cost is covered.

Outside those sections, 200.407 says missing approval does not by itself make a cost unreasonable or unallocable, though a recipient may still ask in advance to head off a dispute. For an unusual cost, asking is cheap insurance. And while 200.308(e) bars agencies from adding prior approval requirements without OMB approval, award terms still carry agency conditions, so read the award first.

What agencies may waive: pre-award costs, one-time extensions, carryover

Outside the ten, 200.308(g) lets the agency waive other prior approvals. The three named examples:

The one-time extension still needs prior approval if the award terms prohibit it, if it needs more federal funds, or if it changes the approved scope (200.308(g)(2)). For research awards, these waivers apply automatically unless agency regulations or award terms say otherwise (200.308(h)).

The 10 percent transfer rule, read precisely

Most people describe 200.308(i) as "you can move up to 10 percent without asking". That is not what it says. It says the agency may, at its option, restrict transfers among direct cost categories, such as personnel, travel, and supplies, or among programs, functions, and activities, when both conditions hold:

• The federal share of the award exceeds the simplified acquisition threshold. Part 200 uses the FAR figure, and FAR 2.101 currently sets it at $350,000.
• The cumulative amount of transfers exceeds or is expected to exceed 10 percent of the total budget, including cost share, as last approved by the agency.

Our reading: below the threshold, this paragraph gives the agency no basis to restrict category transfers, and above it the restriction exists only if the award terms impose it. Either way, the ten 200.308(f) items apply to every dollar.

Our interpretation on "cumulative": 200.308(i) does not say how to count. We track the gross amount moved into categories over the life of the budget, never the net, because netting a $20,000 increase against a $20,000 decrease elsewhere shows zero and hides the change. Check the agency's own terms for its method.

Worked example: when rebudgeting crosses the line

A community health nonprofit holds a federal grant with a $600,000 federal share and $150,000 of required cost share. The total approved budget is $750,000. The award terms adopt the 200.308(i) restriction.

The federal share exceeds $350,000, so the test applies. Ten percent of $750,000 is $75,000.

The November supplies transfer is unremarkable on its own; it is the one that pushes the running total past $75,000, which is why the tracker matters more than any single entry. The $4,000 participant support move needs approval whatever the total says.

Now change one fact. If the June "vendor" actually carries out part of the program and makes its own programmatic decisions, it reads like a subaward. If it was not proposed and approved, 200.308(f)(6) requires prior approval though $25,000 sits well inside the 10 percent room. Document that classification call before the money moves.

What the accounting firm should check in the GL

Section 200.302(b)(5) requires the financial management system to compare expenditures with budget amounts for each award. That comparison is where prior approval problems show up first. Our checklist for a client with federal awards:

1. Load the approved budget from the latest award document or amendment, by category, with federal and cost share columns, into the GL or a linked budget module.
2. Keep a transfer log per award: date, from, to, amount, running gross total, and the 10 percent ceiling if the award imposes one.
3. Map GL accounts to award budget categories once, in writing. Recoding between "contractual" and "subaward" accounts should require a reviewer.
4. Run budget to actual by category monthly. Flag any category over budget, any participant support underspend paired with an overspend elsewhere, and any new subrecipient vendor ID.
5. Compare payroll allocations for the named project director or PI against the approved effort. A 25 percent drop over the period of performance is a trigger.
6. Reconcile cost share recorded against cost share committed. A shortfall is a change in the approved amount under 200.308(f)(7).
7. File every approval letter or system approval with the award, and tie each to the transfer it covers.
8. Review costs dated before the award start and after the period of performance end. Under 200.403(h), costs other than administrative closeout costs must fall within the approved budget period.

Common mistakes that turn into audit findings

• Treating the 10 percent rule as universal permission and skipping the ten 200.308(f) items.
• Measuring against the federal share only. The 10 percent base includes cost share, as last approved.
• Netting transfers instead of counting gross amounts.
• Requesting approval after the cost is incurred. The 200.1 definition says "in advance".
• Recoding a subaward as a contract, or the reverse, to fit the budget.
• Assuming any email counts. Approval must come from an authorized official, and 200.308(c) asks for requests in the application's budget format unless the agency approved another. Confirm the person who said yes had authority to say it.
• Missing the 10-day window for a no-cost extension, then running out the clock. Final reports and liquidation are due 120 calendar days after the period of performance ends for recipients, and 90 for subrecipients reporting to a pass-through entity (200.344).

A cost questioned for missing approval is not fixed by moving it to another line. Under 200.410, payments for costs determined unallowable must be refunded with interest. The findings are public too; our guide to reading Single Audit findings shows where they appear.

How AwardNote uses this

Sources

All retrieved October 29, 2026.

• 2 CFR 200.308, Revision of budget and program plans (eCFR): ecfr.gov
• 2 CFR 200.407, Prior written approval (prior approval) (eCFR): ecfr.gov
• 2 CFR 200.1, Definitions (eCFR): ecfr.gov
• 2 CFR 200.302, Financial management (eCFR): ecfr.gov
• 2 CFR 200.329, Monitoring and reporting program performance (eCFR): ecfr.gov
• 2 CFR 200.344, Closeout (eCFR): ecfr.gov
• 2 CFR 200.403, Factors affecting allowability of costs (eCFR): ecfr.gov
• 2 CFR 200.410, Collection of unallowable costs (eCFR): ecfr.gov
• 2 CFR 200.456, Participant support costs (eCFR): ecfr.gov
• FAR 2.101 (48 CFR 2.101), Definitions, simplified acquisition threshold (Acquisition.gov): acquisition.gov
• OMB, Guidance for Federal Financial Assistance, final guidance, 89 FR 30046 (Federal Register, April 22, 2024): Federal Register

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