TLDR
Moving grant funds between approved budget categories without proper prior approval is one of the most common causes of disallowed costs at audit. Under 2 CFR 200.308, recipients must obtain prior written approval from the federal awarding agency before making certain budget modifications — including reallocations that exceed defined thresholds, changes in scope, and several specific cost categories. Understanding what requires approval versus what you can change unilaterally is essential for clean grant administration.
Budget modifications are a routine part of grant management — grant-funded projects evolve, costs shift between categories, and what made sense at the application stage does not always reflect what is needed twelve months in. The compliance question is not whether you can modify your budget, but whether you did so in the way the funder requires.
The Prior Approval Framework Under 2 CFR 200.308
The Uniform Guidance (2 CFR Part 200) establishes the baseline prior approval requirements for federal grants. Section 200.308 lists the changes that require advance written approval from the federal awarding agency. These include:
Changes in scope or objectives. Even if no dollars move between categories, a change in what the grant-funded program is actually doing requires prior approval. If the approved grant was for after-school tutoring in math and you want to redirect resources to science instruction, that is a scope change requiring approval regardless of budget impact.
Changes in key personnel. If your executive director, project director, or other key person named in the application leaves or is replaced, you need prior approval before the new person takes over responsibilities. Key personnel are defined in the notice of award, not by you.
Transfers to restricted cost categories. Moving funds into or out of the following categories always requires prior approval regardless of amount: foreign travel, equipment (items with unit cost at or above the capitalization threshold), participant support costs, and subcontracts (if not included in the approved budget).
Cumulative reallocations exceeding the agency threshold. If the total of all budget transfers — in both directions — exceeds 10% of the total award (or a lower threshold set by the awarding agency or program terms), prior approval is required even if each individual transfer seemed minor.
No-cost extensions. If you need additional time beyond the period of performance end date to complete approved activities, you must request a no-cost extension before the end date. Post-expiration extensions are generally not available.
What the 10% Rule Actually Means
The 10% rebudgeting flexibility is a default standard under Uniform Guidance, but it operates within constraints:
- It applies to the total award amount, not individual line items. If your total award is $250,000, the threshold is $25,000 in cumulative transfers.
- The 10% is cumulative across all modifications during the entire grant period, not per-modification or per-year.
- The program-specific terms in the notice of award can reduce or eliminate this flexibility. Some federal programs (particularly certain formula grants and high-risk awards) require prior approval for any budget modification regardless of amount.
- Even within the 10% threshold, changes that alter the grant’s scope or shift funds into restricted categories require prior approval.
The 10% rule gives you room to manage normal budget variances without agency paperwork for every minor shift. It does not give you room to fundamentally repurpose the grant without approval.
How to Request Budget Modification Approval
When a modification requires prior approval, submit the request in writing before making any expenditure change. Do not spend first and seek retroactive approval — retroactive approval is not required to be granted and creates an audit finding if denied.
A complete budget modification request includes:
What you are requesting. State the specific dollar amounts being transferred, the source category (where funds are moving from) and the destination category (where funds are moving to), and the resulting budget if the modification is approved.
Why you need the change. Explain the operational circumstances that drove the need — staff turnover, changed program conditions, cost savings in one area enabling investment in another. Connect the explanation to the approved grant objectives.
How the modification serves the grant’s purpose. Confirm that the change does not alter the scope, objectives, or key personnel without separate approval. If any of those elements are also changing, address them in the same request.
Timeline. When the expenditure change needs to take effect. Give the program officer reasonable lead time — budget modification requests are not emergency approvals.
Submit the request to your program officer using whatever channel the agency specifies (often email to a grants management specialist, sometimes through an agency portal). If the agency has a required form, use it.
Documentation Requirements
Budget modification documentation must be retained in the grant file for the full record retention period (minimum three years from final expenditure report, often longer). Required documentation:
| Document | Retention Requirement |
|---|---|
| Original modification request | Permanent grant file |
| Agency written approval | Permanent grant file |
| Updated budget tracking reflecting approval | In grant management system |
| Confirming email for any verbal approval | Permanent grant file |
| Denial notice and any revised request | Permanent grant file |
A verbal approval from a program officer does not protect you in an audit. If you receive verbal approval, immediately send a confirming email: “Per our call today, you have approved our request to transfer $12,000 from Personnel to Contractual Services. Please reply to confirm.” Keep that email thread in the grant file.
Modifications That Do Not Require Prior Approval
Under the standard Uniform Guidance provisions, recipients have unilateral authority to:
- Reallocate funds between budget categories up to the 10% threshold (absent program-specific restrictions)
- Reduce costs in any category through operational efficiency without agency approval
- Make minor adjustments to personnel time allocations when they do not change key personnel or scope
Even for changes within your unilateral authority, maintain a brief written record in the grant file explaining the reason for the change. An unexplained budget variance discovered during audit requires explanation — a contemporaneous note in the file eliminates the need to reconstruct your reasoning months or years later.
The Scope Change Issue
The most consequential, and most frequently misunderstood, prior approval requirement is the scope change rule. A budget modification can be entirely within the 10% threshold and still require prior approval if it results in a change in what the grant is actually accomplishing.
Common scope change scenarios that nonprofits sometimes overlook:
- Moving 15% of a workforce development grant’s budget from direct training to technology equipment, reducing the number of participants who can be served
- Redirecting personnel from a specific program model described in the application to a different model with different evidence characteristics
- Shifting from serving one geographic area to another even with the same activity type
- Reducing a key deliverable (such as number of site visits or publications) below what was committed in the application
When in doubt, ask the program officer before making the change. A brief email inquiry is far less burdensome than explaining an unauthorized scope change in a corrective action plan after an audit finding.
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