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HHS’s AERO Initiative: A Warning Shot for All Federal Financial Assistance Recipients
The US Department of Health and Human Services (HHS) has launched the Audit Enforcement and Risk Oversight (AERO) initiative, sending formal letters to all 50 governors and state treasurers warning them of the implications of audit noncompliance. While this communication targeted HHS's grant portfolio, every organization receiving federal funds should pay attention. AERO may be a preview of what is coming for federal financial assistance recipients across the federal government.
Using AI analytical tools, HHS is conducting a rolling review of at least 5 years of Single Audit history across all 50 states, targeting unresolved findings, repeat deficiencies, and delinquent audit submissions. Consequences for noncompliant recipients include the remedies outlined in 2 CFR 200.339, which include payment withholding, cost disallowance, award suspension or termination, and debarment proceedings.
This is HHS operationalizing 2 CFR 200.513(c) Awarding Federal agency responsibilities and signals a broader shift by the federal government to use existing data received, AI, and legal authority to enforce compliance standards and tighten the regulatory environment, especially on recipients who treat Single Audit compliance as a back-office routine.
Recommended Actions for Recipients
- Review your audit history. Identify any repeat findings, open corrective action plans, or late submissions; assume federal agencies are doing the same.
- Close open findings. Any unresolved finding is now an enforcement vulnerability, not just an audit comment.
- Check submission deadlines. Delinquent submissions are an explicit AERO trigger.
- Monitor your subrecipients. If you are a pass-through entity, your risk profile includes theirs.
Visit the Federal Audit Clearinghouse to review your entity’s Single Audits now: The Federal Audit Clearinghouse.
Federal Grants Are a Policy Tool, Not Just a Ledger Line
The federal government distributes roughly $1 trillion in federal financial assistance every year, and reform efforts continue to treat it as an accounting problem. A recent US Government Accountability Office (GAO) report, Grants Management: Efforts to Address Challenges Through Government-wide Collaboration, argues that federal financial assistance is the mechanism through which the federal government implements its policies and achieves its goals - channeling resources to the organizations that do the actual work.
Recipients know this better than anyone. Navigating complex requirements, decoding funding announcements, and proving outcomes, not just compliance, are operational burdens that land on the receiving end. Smaller, less-resourced organizations may struggle to compete on the same level as larger organizations with entire teams dedicated to grants.
Efforts are underway to simplify funding announcements and adopt plain-language guidelines, and recipients can help shape those improvements. Public comment periods, grantee surveys, and direct feedback to program officers are all levers available to organizations that want a seat at the table.
The question Washington needs to start asking is not just "how do we account for this money?" but "how do we make this money work?". Recipients have a stake in that answer.
White House Funding Scrutiny May Affect All Recipients
The federal Office of Management and Budget (OMB) issued a memo that is raising flags across the nonprofit world and could signal broader oversight ahead for all federal financial assistance recipients.
OMB directed all executive branch agencies to compile spending data on 49 nonprofit organizations, covering grants, loans, contracts, and cooperative agreements for fiscal years 2024–2026. The targeted groups focus on DEI, immigration, LGBTQ+ issues, civil rights, and humanitarian aid.
OMB did not explain why these particular organizations were selected, saying only the data "will be used to better understand the scope of funding." This follows a pattern, as you probably know, the administration previously attempted a broad federal funding freeze and has already requested similar spending reports targeting particular states.
What Should You Do Now?
Regardless of your organization's mission, ensure your federal award records are compliant, accurate, and current. In this environment, proactive compliance is not just good practice, but protection.
Leverage our Center for Grant Excellence resources to address your grant compliance needs.
A New Roadmap Through the Federal Data Maze
For federal financial assistance applicants, navigating data requirements has long felt like wandering without a map. A new resource aims to change that: Federal Data Field Guide.
The University of California, Berkeley's School of Information recently released this guide as a plain-language primer on the different types of data the federal government collects, how they are used, and the legal limits on sharing them. While designed for a broad audience, its usefulness for federal financial assistance applicants is significant.
Federal agencies are requesting that applicants collect additional data and submit data management plans as part of their submitted applications and project implementations. The guide builds the foundational literacy applicants need. Understanding the special characteristics of any given dataset requires a working knowledge of the main governing policies issued by the agencies themselves.
Each federal agency has its own data requirements for applicants, and a weak plan within your application can count against you during merit review and evaluation. This guide will not write your application for you, but it gives you the policy grounding to write a much better one.
GAO Identifies Over $100 Billion in Federal Savings…and What Local Funders Can Learn
The US Government Accountability Office (GAO) annual duplication and cost savings report finds federal agencies could save billions of dollars by cutting redundant programs and reducing improper payments. Two culprits: agencies operating in silos without a coordinated anti-fraud strategy, and duplicative funding streams such as broadband dollars flowing through multiple agencies with no process to prevent double-funding the same projects.
The local parallel is hard to ignore. Do your own grantmaking efforts replicate these same patterns?
Here is how to apply the GAO's lessons locally:
- Review your portfolio for signs of overlap. Are multiple state or city agencies running similar programs in the same geography? What about community foundations? Build or join a funding landscape inventory to find out.
- Strengthen vetting. Improper payments stem from weak verification. Create a shared applicant database within your organization or utilize a common grant application across your organization to catch red flags before funds are disbursed.
- Coordinate before funding, not after. Convene co-funders at the strategy stage. A single alignment conversation can prevent redundancy and multiply impact.
- Develop a basic fraud protocol. Share red-flag information, along with monitoring and auditing information, with peer funders within your organization.
- Use the GAO report as a prospecting tool. Every gap it identifies, like poor coordination or underfunded priorities, is a local investment opportunity.
The funders who internalize these lessons will not just stretch their dollars further. They will model the accountable, coordinated grantmaking that others have yet to achieve.
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